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What You Need to Know About Hawaii’s Real Estate Withholding Tax When Selling

If you’re a non-resident of Hawaii, or a foreign national planning to sell property here, there’s an important tax-related detail you’ll want to understand upfront:

There is no special tax for non-residents.

But Hawaii, along with the U.S. federal government, requires certain sellers to prepay taxes through withholding at the time of sale.

It’s not an additional tax. It’s just paid early. You will get a refund if your realized gain is less than the withholding amount.

Still, it can affect your cash flow and future plans if you’re not prepared.

Let’s break it down.

HARPTA: Hawaii’s State Withholding Tax

HARPTA stands for Hawaii Real Property Tax Act.

It applies to anyone who doesn’t file taxes here: U.S. citizens and foreign nationals alike.

  • Rate: 7.25% of the gross sales price

  • Collected: At closing, via escrow

  • Purpose: A prepayment against potential Hawaii capital gains tax

This law was created after the 1980s property boom, when many non-resident owners sold properties and left the state without paying taxes. Today, HARPTA ensures tax collection through escrow at closing.

HARPTA can be exempt if it

FIRPTA: U.S. Federal Withholding for Foreign Sellers

If you’re a non-U.S. citizen, the federal government also requires withholding under FIRPTA—the Foreign Investment in Real Property Tax Act.

  • Rate: 15% of the gross sales price

  • Applies to: Nonresident aliens (foreign nationals)

  • Collected: Automatically by escrow at closing

So What’s the Total?

Depending on your residency status, here’s what to expect at the time of sale:

  • U.S. non-residents (e.g., mainland U.S. citizens living outside Hawaii):
    7.25% withheld for HARPTA

  • Foreign nationals (non-U.S. citizens):
    7.25% (HARPTA) + 15% (FIRPTA) = 22.25% total withholding

Remember, this is withholding, not a final tax. After the sale, you’ll file a tax return to calculate your actual capital gains. If the tax owed is less than what was withheld, you’ll be eligible for a refund.

Quick Summary: Key Points to Remember

  • ✅ Hawaii non-residents pay 7.25% withholding (HARPTA) at closing

  • ✅ Foreign nationals also pay 15% federal withholding (FIRPTA)

  • ✅ Refunds are possible if the capital gain is lower than the withheld amount

  • ✅ You must file a tax return to claim any refund

  • ✅ HARPTA exemptions may apply if there’s no gain (but not guaranteed)

  • ❌ FIRPTA exemptions are not possible as it require complex pre-approvals

  • ✅ Hawaii-based corporations are exempt from HARPTA withholding

  • ✅ Foreign nationals must still file U.S. tax returns, regardless. Obtaining a TIN is not as easy as in the past. Please contact us if you need assistance.

  • ✅ 1031 Exchange is exempt

Why Planning Ahead Matters

The withholding amounts, especially the 15% under FIRPTA, can significantly reduce your available funds after closing. This may affect your ability to:

  • Purchase a replacement property

  • Reinvest the funds

  • Access your capital quickly

That’s why we always recommend consulting with a Hawaii-based CPA before listing your property. They can help you:

  • Estimate potential gain and tax impact

  • Understand your withholding obligations

  • Explore refund timelines and strategies

Final Thoughts

Selling real estate in Hawaii comes with nuances, especially for non-resident and international owners. Understanding HARPTA and FIRPTA withholding is a key part of smart planning.

It’s not just about taxes. It’s about timing, liquidity, and protecting your investment.

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