What is HARPTA?
What is HARPTA?
HARPTA, or the Hawaii Real Property Tax Act, isn’t a tax itself but a withholding requirement. Specifically, if you’re a non-resident selling property in Hawaii, the state requires that 7.25% of the sales price be withheld at closing. The purpose? To ensure that any capital gains taxes are paid before you leave with the proceeds.
How Does HARPTA Impact Sellers?
If you're selling your property and you’re not a Hawaii resident, HARPTA will affect you. It’s essential to note that the withholding is based on the sales price, not just your profit. So, for example, if your property sells for $800,000, $58,000 will be withheld, regardless of how much profit you’ve made.
However, the good news is that this withheld amount isn’t gone forever. If your actual capital gains tax is less than the withheld amount, you can apply for a refund!
Can You Reduce or Eliminate HARPTA Withholding?
Yes, there are ways to reduce or eliminate the withholding before you even file your taxes. Here’s how:
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Form N-288C: Filing this form can help you get a refund of the withheld amount before you file your tax return. This is particularly useful if the amount withheld exceeds your actual tax liability.
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Form N-289: If you meet certain conditions, such as having used the property as your primary residence for at least two years before the sale, you may be able to apply for an exemption from HARPTA.
What Buyers Need to Know About HARPTA
As a buyer, you’re not off the hook! HARPTA directly involves you because you’re responsible for ensuring the withholding is done and sent to the state. This might sound overwhelming, but don’t worry—your title and escrow company typically handles the process for you.
However, it’s essential to be aware of HARPTA’s implications, especially if you’re buying from a non-resident seller. If you don’t ensure the withholding happens, you could potentially be on the hook for unpaid taxes.
Also, consider the future: If you’re a non-resident buyer now but might become a non-resident seller down the line, HARPTA will come into play when you sell the property.
Why Does Hawaii Have HARPTA?
HARPTA ensures that the state of Hawaii collects its due taxes from non-residents selling property within the state. It prevents non-resident sellers from avoiding their tax obligations and ensures that the proper amount of capital gains tax is paid to the state. In some cases, this may result in over-withholding, but again, the seller can apply for a refund if the withholding exceeds their tax liability.
Final Thoughts on HARPTA: What You Need to Remember
HARPTA may seem complex, but with a little knowledge and the right forms, it’s manageable. Whether you're buying or selling in Hawaii, understanding HARPTA is crucial to ensuring that the real estate process goes smoothly and there are no surprises at closing.
Take Action: Simplify Your Hawaii Real Estate Experience
Whether you’re a non-resident seller looking to understand HARPTA or a buyer navigating the beautiful Big Island real estate market, we're here to help!
Contact us today for expert guidance on buying or selling property in Hawaii. We’ll walk you through HARPTA, help you prepare the right forms, and make your real estate journey as smooth as the island breezes. If you have any questions about HARPTA or Hawaii real estate, don’t hesitate to reach out! Leave a comment below, or click here to schedule a consultation with our team. Aloha!
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