UNDERSTANDING HARPTA

What is HARPTA?

HARPTA stands for Hawaii Real Property Tax Act. It's a Hawaii state tax withholding that applies to all real estate transactions in Hawaii. The act states that all non-resident sellers must withhold 7.25% of the “realized” price (usually the sales price) of the property and pay it directly to the Department of Taxation in Hawaii.

The purpose of HARPTA is to make sure non-residents pay enough state income tax when selling a property in Hawaii. For the purposes of this act, a non-resident is someone whose permanent or primary residence isn’t in the state of Hawaii.

How does HARPTA apply to me?

HARPTA applies to anyone who owns real estate property in Hawaii and is enacted when a non-resident seller wants to sell their property. It affects both buyers and sellers differently. Read below to learn how this law may impact your real estate sale.

Buyers

Buyers looking to purchase a piece of property in Hawaii are responsible for withholding 7.25% of the property's sale price for the seller. If you don't withhold the correct amount and it's determined later that the sale was subject to withholding, the buyer is liable. The buyer could also face a penalty and interest on the owed amount. It's the buyer's responsibility to make the estimated tax payment on behalf of the seller. The estimated tax payment must be made no more than 20 days after the close of the sale, along with forms N-288 and N-288A.

Sellers

If you are a permanent resident of Hawaii, the tax withholding may be waived. If you think you are exempt from this withholding, you must fill out Form N-289 and present it to the buyer to confirm your residency. If you're a resident of Hawaii but do not supply the buyer with this form, the buyer is still responsible for withholding the 7.25% of the realized sales price.

Refunds

If the estimated withholding is more than your actual tax liability for the sale of the property, you may request a refund. The first step in the refund process is to file a Hawaii state income tax return at the end of the year. In some cases, you may be able to apply for a refund earlier.

You may qualify for a partial refund if certain criteria are met, as in the scenario below:

A non-resident of Hawaii sells a contract for $15,000. The seller originally paid $13,000. The buyer will submit a payment (7.25% × 15,000 = $1,087.50) to the state. However, the seller may only owe $145.00 in taxes based on the $2,000 profit that was made. The seller can apply for an estimated partial refund of $942.50.

In certain situations, you may request and receive a full refund. This usually happens when there wasn’t a profit made on the sale of the property. Consider the situation below:

A non-resident of Hawaii sells a contract for $10,000. The seller originally paid $13,000 for the contract. At closing, a payment of $725.00 will be submitted to the state. The seller applies and receives a full refund because they made no profit on the transaction.

Any overpayment will be refunded after the state income tax return is filed. If there are other taxes (like capital gains) that apply to the sale of the property, you may end up owing more than the initial withholding and be responsible for the additional payment.

How to Avoid HARPTA Withholding

1. The seller is a resident of Hawaii and provides the buyer with the correct residency form (N-298).
2. The property was the seller’s primary residence for at least one year before the sale and the realized sales price is less than $300,000.
3. The gain from the sale is not taxable under Hawaiian or federal tax law definitions.

How HARPTA Affects DVC Members

Most DVC members who own at Aulani and want to sell their DVC membership will need to have HARPTA taken out of their final seller's payment. The only exception is if you own at Aulani, are a resident of Hawaii, and present the buyer with the correct form. It's the buyer's responsibility to withhold 7.25% of the sales price for the seller. Then, the seller may apply for a refund separately. In most cases, DVC members may be eligible for a full refund since there may not be profit made due to the sale.

Don't worry. When you use DVC Market to sell your Aulani DVC membership, our title company will withhold 7.25% of the sales price and send it to the Department of Taxation themselves. Sellers then have the option to have our title company submit the forms to apply a refund for an additional fee.

Note: this article is for informational purposes only and is not intended as legal advice. Please seek the guidance of a tax or legal professional for insight on your particular situation.