HARPTA is a Hawaii state tax law which requires withholding 7.25% from the proceeds of certain real estate transactions if the seller is not a resident of Hawaii. It is similar to the federal FIRPTA withholding.
The HARPTA withholding is is collected to insure non-Hawaii resident sellers of real estate pay any state taxes connected to the transaction. This rate of withholding very large in comparison to what most sellers will ultimately owe in tax. If you plan ahead, you can minimize or eliminate the amount of withholding from your Hawaii real estate sales transaction.
Almost 1/3 of real estate (by value) in Hawaii is owned by non-residents. These include US citizens living on the mainland and all other non-US persons.
When you decide to sell your real estate can save you precious cash flow by minimizing or eliminating the amount of HARPTA that will be withheld from your proceeds at the closing table. There are exemption applications which may be filed prior to closing which will enable the closing agent to reduce or eliminate HARPTA withholding. These exemptions require timely filing and must occur well in advance of the closing date.
If you have closed a transaction and had the full 7.25% withheld from your proceeds you may be wondering how to recover your money. If you don’t owe any tax on the transaction or have any other unpaid income or excise taxes - you can recover the full amount withheld.
Hawaii Taxes you Might Owe
Hawaii state income tax returns are due each year you rent property on Hawaii. This is true whether or not your rental creates taxable income or not. There can be significant differences between federal and Hawaii depreciation allowances and it is possible that you owe Hawaii state income tax on the rental even if you did not show a profit on your federal return.
Hawaii General Excise Tax (GET) of 4.00-4.50% is due on all long term rental of over 30 days. GET and Transient Accommodation Tax (TAT) of 10.25-10.50% is due on all short term rentals of under 30 days.
You are subject to Hawaii capital gains tax of up to 7.25% on the profit (gain) realized on the transaction.
Once you are current on all of the taxes above, you are eligible to file for an early refund of the withheld tax based on an estimate of the tax you may owe. If your estimate is zero, you may be able to recover the entire amount prior to filing your next HI state income tax returns. NOTE: Any unfiled GET/TAT/Income tax returns must be filed prior to receiving a HARPTA refund.
Need Help with HARPTA Refunds and Recoveries and Back Tax Returns in Hawaii?
The HARPTA withholding and refunding process can be confusing; their are up to five separate tax forms which may be involved in your individual withholding and refund transactions. Review the relevant forms here and you may decide you feel comfortable in pursuing the refund process on your own.
If you need assistance with HARPTA withholding recoveries on Form 288C or filing pre-transaction exemptions on Form N-289 I can help. Call or email today.