HARPTA Undergoes 2.5% Increase

*This article is intended to be used for informational purposes and is by no means legal or tax advice* 

What is the Change in the HARPTA Obligation?

The Hawaii Legislature has just passed a new bill that will raise the percentage of the sales price that the State requires to be withheld on the sale of real property by nonresidents, commonly referred to as “HARPTA”.

HARPTA will be increased from 5% to 7.5% on sales that occur on or after September 15, 2018.

Essentially, the law is in effect to ensure nonresident sellers report and pay their capital gains tax obligations.

Are there any exemptions?

  1. If the sellers are conducting a 1031 exchange
  2. If the seller of the property is selling it at a loss or realized a gain of less than 7.25%
  3. If the sales price is less than $300K and the property has been used as a principal residence for the past year

Via PBN, Tom Yamachika, President of the Tax Foundation, noted in his testimony that HARPTA itself is not a tax, but rather “a means for the state to collect capital gains taxes from absentee owners.”

What the Heck is HARPTA?

Officially known as the Hawaii Real Property Tax Act, HARPTA for short, is the tax on real estate transactions that are withheld when a nonresident sells their Hawaii real estate. Per the State of Hawaii’s Department of Taxation, “HARPTA legislation requires a purchaser to withhold a percentage of the sales price when acquiring Hawaii real property from a nonresident seller and remit the amount withheld directly to the State.”

Previously, some nonresidents who sold their property were unaware that they were obligated to pay Hawaii taxes and neglected to file a Hawaii tax return. The withholding tax is typically charged to the buyer when the seller of the property is a nonresident and is intended to guarantee the collection of Hawaii income tax that may be the obligation of the nonresident seller. 

HARPTA can be linked to the California withholding tax, CalFIRPTA, and is also similar to FIRPTA (Foreign Investment in Real Property Tax Act), the federal withholding tax.

Contact A Maui Real Estate Specialist

Please interview me to be your trusted Maui Real Estate and Lifestyle Advisor. I was born and raised on the island, and spend a considerable amount of time to inform my clients about the best deals currently on the market. Please do not hesitate to call me for your Maui real estate needs. I am more than happy to assist you in your home search.

Aloha,

Anthony Sayles R(S)
Anthony@Danosayles.com 
808-280-6532

Sources: 

  • http://tax.hawaii.gov/forms/a1_b3_6harpta/
  • https://www.bizjournals.com/pacific/news/2018/04/30/bill-passes-to-up-withholding-on-sales-of-hawaii.html

*This article is intended to be used for informational purposes and is by no means tax or legal advice*