What is HARPTA?

Under HARPTA, every buyer, not the seller, is required to withhold and pay to the Department of Taxation 7.25% of the amount realized on the disposition of Hawaii real property. This puts a tremendous amount of pressure on the buyer when purchasing Hawaii real estate.  The buyer must pay the amount withheld to the Department using Form N-288, Hawaii Withholding Tax Return for Dispositions by Nonresident Persons of Hawaii Real Property Interests, and Form N-288A, Statement of Withholding on Dispositions by Nonresident Persons of Hawaii Real Property Interests.

Because the buyer is required to withhold and pay to the Department of Taxation 7.25% of the amount realized on the disposition of Hawaii real property by nonresident persons, he will withhold this amount from the seller’s proceeds, unless receiving the proper exemption paperwork from the seller.

A common misperception is that HARPTA does not apply when the seller is a Hawaii resident. HARPTA does apply when the seller is a Hawaii resident, but the buyer is not required to withhold if the seller gives the buyer Form N-289, Certification for Exemption from the Withholding of Tax on the Disposition of Hawaii Real Property, stating that the seller is a Hawaii resident.

HARPTA is not a tax. The amount withheld and paid to the Department by the buyer is an estimated tax payment made for the seller. The buyer is acting as a withholding agent. When the seller files a Hawaii income tax return to report the sale (and any other Hawaii income), the amount of any taxes due is reduced by the amount that was withheld and paid to the Department. If the amount paid is more than the amount of the tax liability, the seller will receive a refund of the overpaid amount. If the amount paid is less than the amount of tax liability, the seller must pay the balance due.

For more information on understanding HARPTA, give me a call and I’d be happy to discuss things with you.

We charge a flat fee of $375 for the majority of HARPTA exemptions.  If that fee differs, it’s because you have an unusual situation that would require several additional hours of attention to resolve.