FIRPTA & HARPTA
Hawaiian Style
Office: (808) 955-6551
Fax: (808) 955-6552
Waikiki Landmark
1888 Kalakaua Ave. C-108
Honolulu, Hawaii 96815
If you yourself are a foreigner to the U.S. or if you are dealing in a transaction with a foreigner, you must be aware of the FIRPTA.
FIRPTA is designed to enforce federal income taxes on foreigners for the sale of property. If you are the Buyer you must find out if the Seller is a foreign person. Person buying any U.S. real property from a foreign Seller is required to withhold and deduct a 10% tax of the Seller’s net gain.
FIRPTA is the responsibility of the Buyer who is acting as the withholding agent. If the Seller is a foreign person and the Buyer fails to withhold, he may be held liable for the tax.
The Buyer must:
1) pay the tax upon transfer of the property, regardless of the amount of cash otherwise present in the transaction.
2) file Forms 8288 and 8288-A to report and transmit the amount withheld to the IRS
However, there are 5 exceptions:
1) Seller has a U.S. taxpayer identification number
2) Property in transfer is a residence to be occupied by the Buyer himself and the price does not exceed $300,000. The Buyer must be an individual.
3) The Seller has an IRS Withholding Certificate
4) Notice of Non-recognition Treatment: Seller is not required to recognize gain and loss in compliance with the requirements of Treasury Regulations §1.1145-2(d)(2)
5) Sale of U.S. Corporation may be exempt from withholding under certain circumstance. Consult your attorney on matters related to the sale of stock.
The FIRPTA is only a withholding approximation on the Seller’s net gain. The Seller must still file a federal income tax return with the IRS for the year the sale occurred and either
(a) obtain a refund for amount over-withheld or
(b) make additional payments to the tax previously withheld.
If the Seller is a foreigner, they are also a nonresident of Hawaii. Therefore,
you must also be aware of the HARPTA. HARPTA is similar to the FIRPTA except
it is at a state level instead of federal and deals with all nonresidents
not only foreigners.
Hawaii Real Property Tax Act (HARPTA)
If you yourself are a nonresident of Hawaii or if you are dealing in a transaction with a nonresident, you must be aware of the HARPTA.
HARPTA was last amended in 1991 and is designed to enforce Hawaii state
income taxes on nonresidents for the sale of property. If you are the Buyer you must find out if the Seller is a nonresident of Hawaii. When transferring
property in Hawaii, the Buyer must deduct, withhold, and pay 5% of the Seller’s net gain to the Hawaii Department of Taxation.
HARPTA is the responsibility of the Buyer who is acting as the withholding agent. If the Seller is a nonresident
and the Buyer fails to withhold, he may be held liable for the tax.
The Buyer must:
1) withhold and deducted upon the transfer of property.
2) file Forms N-288 and N-288A to report and transmit the amount withheld
to the Hawaii Department of Taxation.
However, there are 4 exceptions:
1) The Seller has a Hawaii Resident Certification (Note: foreign corporations and partnerships registered with the Hawaii Department of Commerce and Consumer Affairs in the State of Hawaii are considered a Hawaii resident)
2) The property was the Seller’s principal residence for the year preceding the transfer and the sales price does not exceed $500,000.
3) Seller obtains a Hawaii Withholding Certificate issued by the Hawaii Department of Taxation
4) Notice of Non-recognition Treatment: Seller is not required to recognize gain and loss with respect to the transfer. (Note: nonresidents doing a 1031 exchange may consider this option)
The state tax withholding would not increase the amount of income tax paid
by nonresidents since the amount withheld will be claimed as a payment
on the Hawaii nonresident income tax return.
This tax is similar to the FIRPTA except it is at a state level instead
of federal and deals with all nonresidents not only foreigners. If you
yourself are a foreigner to the U.S. or if you are dealing in a transaction
with a foreigner, you must be aware of the FIRPTA.
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