Buyer FAQ #4: Are there special taxes for Non-Residence?
I am often asked by foreign and non-Hawaii resident buyers and sellers whether there are any special taxes they should be aware of when purchasing or selling real estate in Hawaii.
The answer to that question is yes, HARPTA & FIRPTA.
HARPTA, which stands for Hawaii Real Property Tax Act (1990) was established to promote compliance by non residents of Hawaii to report income from the sale of real property located in Hawaii. The tax liability belongs to the seller, and 5% of the gross sale price will be withheld in escrow and submitted to the State of Hawaii Department of Taxation. For more detailed information on HARPTA visit Hawaii.gov or consult your tax advisor.
In addition, there is a similar federal law for foreign sellers of real estate. FIRPTA, which stands for Foreign Investment Real Property Tax Act (1980) requires a withholding by the buyer or transferee for the Sellers tax liability. Under current federal law, if a foreign person sells US real property, the buyer is obligated to withhold 15% of the gross sales price and remit this to the lRS. For more detailed information visit IRS.gov or consult your tax advisor.
As with HARPTA, the intent of the FIRPTA withholding is to ensure that capital gains taxes are paid on the sale of real estate.