What do these acronyms mean?Hawai‘i Real Property Tax Act (HARPTA) is a state tax of 5 percent withheld from absentee owners to collect capital gains taxes. State law requires buyers of Hawai‘i real estate to send this tax withheld, along with the appropriate form, to the Hawai‘i Department of Taxation within 20 days following escrow.
Most escrow companies complete this form; buyers sign it at closing and are unaware of their responsibility. However, if you are buying from an absentee owner, be sure to verify with escrow that this tax is being withheld, because ultimately the buyer is responsible. Other states have similar laws as well.
This money is applied to any Hawai‘i tax due from the seller with regards to the sale of the property. This does not apply to properties involved in a 1031 exchange. HARPTA is to encourage sellers to report their transactions. If the tax withheld is too much, you may apply for a refund. There are exemptions that may exist for some sellers. For more information, visit the State of Hawai‘i Website, www.hawaii.gov.
Foreign Investment in Real Property Tax Act (FIRPTA) is a similar law to HARPTA; however, it is a federal law for foreign investors. FIRPTA is a 10 percent tax that will be withheld and disbursed to the IRS; again, it is the buyer’s responsibility to determine if the seller is a foreign resident. This tax is also designed to cover any federal tax liability of the seller. More information can be found at www.irs.gov.
If you are a buyer or a seller, it is vital that you are aware of HARPTA and FIRPTA. Your escrow company and realtor will guide you through this process. In addition, always check with your tax professional to determine what is in your best interest when buying and selling property regarding taxes.
Chris Bakeman, PB (principal broker), has been a realtor since 1997, working with both buyers and sellers. Now with her own company, she offers an affordable way to sell your home starting as low as $500 on the MLS, or full service for only $4,000. Call 283-6126 or visit www.chrisbakeman.com.