Understanding 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 that non-residents pay enough state income tax when someone sells a property in Hawaii. For purposes of this tax act, a non-resident is someone who's 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. HARPTA affects buyers and sellers of Hawaiian real estate transactions differently. Read below to learn how this law may impact your real estate sale.

Buyers

Buyers are not responsible for any tax payment when purchasing Aulani. The HARPTA tax is collected from the seller by our title company, along with all required documents.

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 title company to confirm your residency. 

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. There are some circumstances where you may be able to apply for a refund earlier than the state income tax form is available You may qualify for a partial refund if specific criteria are met, like 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% x 15,000 = $1,087.50) to the state. However, the seller may only owe $145.00 in taxes based on the $2,000 in profit that was made. The seller will apply for an estimated partial refund of 942.50.

In certain situations, you may request and receive a refund in full. 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 will be responsible for the additional payment.

HOW DO I AVOID HARPTA WITHHOLDING?

There are a few ways to avoid the HARPTA tax withholding during the sale of property in Hawaii:

1. The seller is a resident of Hawaii and presented the title company with the correct form (N-298) to confirm their residency.
2. The gain from selling the property is not taxable, as defined by the Hawaiian and federal government.

HOW DOES HARPTA AFFECT 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 title company with the correct form.  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.

The good news? When you use DVC Sales 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.