Real Estate

Buying or Selling Property on Maui? What is FIRPTA & HARPTA?

January 26, 2015, 12:56 PM HST
* Updated January 26, 2:03 PM
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IRS_logoBy Alexandra Mitchell

Before discussing FIRPTA and HARPTA, it’s best to start off the conversation by explaining USRPI. USRPI–United States Real Property Interest–is a federal tax term that basically means a bodied interest in a property located within the US; applying to property owners, both foreign and citizens of the US. In the State of Hawai‘i, USRPI is replaced by HIRPI, Hawai‘i Real Property Interest.

FIRPTA–the Foreign Investment in Real Property Tax Act–is a federal law that requires a seller (foreign or US citizen) of a HIRPI to pay a capital gains tax upon the sale of any property. It is a law within the IRC (Internal Revenue Service Code) that requires a hold of the capital gains tax (approximately 10 percent of the sale price) when the sale closes, regardless of cash present or not, and the funds must be sent to the IRS within 20 days of closing. The only exceptions to this would be those of active duty military status, or those who are rolling sale funds over into the purchase of a new property (www.irs.gov).

In addition, Section 1445 tax code will assume that every seller of a HIRPI is a foreigner required to pay the tax to the IRS unless the buyer is provided with an approved “non-foreign certification” (FIRPTA Relief) from the seller, before closing. It is suggested that the buyer holds on to this certification for at least a five-year period of time.

HARPTA stands for the Hawai‘i Real Property Tax Act, which is a tax law in the State of Hawai‘i. HARPTA assumes that every seller is a non resident of Hawai‘i (foreign or US citizen), and subject to a tax withholding which is then to be sent to the State of Hawai‘i 20 days from the date a HIRPI closes. Like FIRPTA, proof of Hawai‘i State residency can be provided to the buyer from the seller by an authorized and signed certificate. If a certificate is not provided to the buyer, and the seller is a nonresident, the tax can be placed upon the transferee or buyer (approximately 5 percent of the sale price).

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But, there is some good news for Hawai‘i residents: HARPTA Relief can apply to a seller that provides the buyer with Hawai‘i Resident Certification (Form N-289); those with reduced or no tax liability, or a sale that does not exceed $300,000.

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In closing, the FIRPTA & HARPTA taxes are required and represent 15 percent of the total sale price.

For additional information, contact your Realtor or visit www.irs.gov.

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