We know selling a property can be an overwhelming process – you’re preparing your home to list, going over the listing agreement with your agent, you’re packing and perhaps working on purchasing a new home, etc.. the list goes on and on! The goal of our team at LUVA Real Estate is to ease the selling process, negotiate the best offer for you, act as your fiduciary with your best interest in mind, ensure that all deadlines are met, and answer any questions that come up along the way. Speaking of questions that come up – one question we ask all our Sellers at the beginning of our listing contract is whether they are Hawaii residents. We ask this because of HARPTA AND FIRPTA, which are two State laws that require non-residents and foreign Sellers to withhold a percentage of the proceeds from the real estate sale. It is important HARPTA and FIRPTA are explained at the very beginning of the listing process, so that Sellers can account for these withholdings if applicable or so they can file an exemption for the withholdings.

HARPTA, which stands for Hawaii Real Property Tax Act, is a state law that requires non-resident sellers to withhold 7.25% of the proceeds from a real estate transaction. The seller may fill out an exemption application which can save them money or eliminate entirely the withholding. The exemption applications are filed prior to transferring of title to the new owner in order for the 7.25% to not be withheld. If the Seller is withheld the 7.25% but thinks they can prove they do not owe this entire amount they can file for a refund. Be aware you will need to provide receipts and accounting documentation to prove your exemption or refund.

FIRPTA, which stands for Foreign Investment in Real Property Tax Act, is a state law that requires foreign Sellers to withhold 15% of the proceeds from a real estate transaction. Similar to HARPTA, the Seller may fill out an exemption application which can save them money or eliminate entirely the withholding. The exemption applications are filed prior to transferring of title to the new owner in order for the 15% to not be withheld. If the Seller is withheld the 15% but thinks they can prove they do not owe this entire amount they can file for a refund. Be aware you will need to provide receipts and accounting documentation to prove your exemption or refund. A Seller who is not a US citizen must file and pay for both HARPTA and FIRPTA.

When determining your eligibility for HARPTA and FIRPTA exemption it is always recommended that you speak with a tax profession for guidance on this or any other Real Estate tax subject. For some more commonly asked questions from Buyers & Sellers, check out our FAQ page here.