Maui County Kauai Big Island Oahu
When you sell real estate here in the islands, 7.25% of the sales price is withheld from your closing proceeds if you aren’t a resident. The HAwaii Real Property Tax Act (commonly referred to as HARPTA) mandates that when you sell a condo for $1,000,000, that $72,500 will be withheld to satisfy HARPTA laws. Keep reading to find out how to recover all or part of this withholding, or maybe even avoid HARPTA withholding altogether.
(simplified example)
You sell a condo for $800,000 in 2021.
You paid $500,000 for the condo in 2010. You had remodeling costs of $100,000 resulting in a total ‘basis’ of $600,000.
You have a capital gain of $200,000.
$58,000 or 7.25% of the $800,000 sales price is withheld from your closing proceeds by the state of Hawaii.
$15,000 or 7.25% of the $200,000 capital gain is the amount which will actually be due to the the state of Hawaii.
$43,000 represents an almost 300% over withholding. A very common situation.
HARPTA Refund Solutions
Not only are taxes high here in paradise they can be complicated. The scenario above is a simplified example. Important factors such as rental depreciation recapture, selling expenses, and exclusions related to owner occupancy will significantly affect these calculations - and are not reflected in this example.
HARPTA REFUND SOLUTIONS simplifies the process of getting your HARPTA refund faster. If you contact us within two weeks of your closing you may be able to avoid HARPTA withholding altogether. (rush charges may apply)
Hawaii taxes capital gains at a maximum rate of 7.25%. In order to insure collection of this tax (and any other taxes you owe may owe the state). Hawaii law requires all closing agents to withhold 7.25% of the sales price from the proceeds of non-resident sellers. The amount withheld can be 2, 3, even 10 times more than justified. And you won’t get that money back until you file the appropriate paperwork.
Appropriate paperwork? File a Form N-288B (with Form N-103 included if applicable) in a timely manner prior to closing to avoid HARPTA withholding altogether if you qualify. Or, maybe you qualify for an N-289 exemption? Alternatively, you may need to file a Form N-288C to get your money back… if you don’t qualify for an exemption. Or just wait until your Form N-15 is due.
Simple, right?
In certain instances if you can prove that no capital gains tax will be due on the transaction, the state will grant a waiver which exempts you from HARPTA withholding. If you qualify for this waiver, HARPTA Refund Solutions can prepare and file the appropriate forms with the Hawaii Department of Tax which will bring your withholding amount from 7.25% to 0%. (Must be applied for 10 days in advance of the intended closing date - strict deadlines and rush charges apply for exemptions ordered within three weeks of closing.)
Many of our clients were unaware of the large withholding requirements of HARPTA. With the size of the typical real estate transaction in Hawaii, it is not unusual for the withholding to exceed $100,000. We will prepare and file your refund application for return of your excess HARPTA withholding. Processing times vary and though refunds can take up to 16 weeks, the majority arrive in 4-8 weeks.
You can’t receive a HARPTA withholding refund or apply for a HARPTA exemption unless you’re compliant with all Hawaii tax filings. If you were renting your property and failed to file income, general excise and/or transient accommodation tax returns, you must file these prior to applying for HARPTA refunds or exemptions. We can prepare and file any delinquent returns necessary to allow you to seek your exemption and refund.
Call HARPTA Refund Solutions before scheduling your close. We can assist with the process and help assure timely and accurate filing of exemptions. Already closed? Call us for refund assistance or with help filing Hawaii back taxes.
If you live in another state or country and are selling your Hawaii real estate
We’ll send you valuable information including our whitepaper “HARPTA: Cute Name, Ugly Law.” HARPTA Refund Solutions can assist with filing exemptions, applying for refunds, and working with you to find the best way for you to hang on to more of your money when selling your Hawaii condo, beach house, raw land or commercial real estate.
In certain circumstances, you may be able to avoid HARPTA altogether. IRS Section 121 exclusions, smaller dollar transactions and sales which result in no capital gain.
Already had HARPTA withheld from your closing proceeds? Call us for assistance with arranging a refund of the over withheld amount. Requires calculating actual Hawaii capital gains tax. Refunds take from 4-16 weeks.
Contrary to popular belief there is no ‘military exemption’ to HARPTA. But most service members are exempt by virtue of IRS rules that HI conforms to.
HARPTA refunds are unavailable until any required back returns are filed. Includes GET/TAT and Income Taxes.
