"Aloha" from Uncle Sam

I once overheard that there is only about a thousand of Hawaii's residents could afford to buy a new condominium in Kakaako. We have about 20 new high rises coming up in that area over the next twenty years.

Due to the high percentage of out of state or out of country investors in our islands, I'd like to briefly talk about HARPTA (The Hawaii Real Property Tax Act) and FIRPTA (The Foreign Investment in Real Property Tax Act). Those two tax withholdings are familiar to everyone who has sold property in Hawaii as a non resident of foreign investor.

What does that mean for me?

There are 5 important questions you should be clear about when selling your Hawaii property.

  1. Do you have a Tax Identification Number (TIN/SSN-Social Security Number)?
  2. If you do not have a TIN, have you completed the W-7 (with certification of passport) and submitted it to IRS?
  3. Are you subject to HARPTA withholding?
    • A sale of Hawaii Real Estate by a Non-Hawaii resident is subject to tax liability. 5% of total sale price will be withheld and submitted to the State of Hawaii Department of Taxation at closing unless the seller has received the exemption prior to the close of escrow.
  4. Are you subject to FIRPTA withholding?
    • A sale of US real property by a foreign person is subject to tax Liability. 
    • No FIRPTA Withholding if: The Sales Price s $300, 000 AND the buyer acquires as personal residence*
    • 10% FIRPTA Withholding if: The sales price is greater than $300, 000 but less than $1,000,000 AND the buyer acquires as personal residence*
    • 15% FIRPTA Withholding on any sales price AND the buyer NOT acquiring as personal residence 
  5. Are you planning to do a 1031 Exchange?

Your realtor and CPA should be fully capable of helping you with all of those questions.

* Buyer will be required to complete the Buyer's Affidavit (if Buyer is acquiring property for use as a personal residence).
Qualification on personal residence:
Principle or a member of principle's family will reside in it for at least 50% of the number
of days it wilt be in use during each of the two 12 month periods following the transfer of
the property to buyer (members of the buyer's family include brothers, sisters, parents,
children, or spouse)

 

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