What Are HARPTA and FIRPTA Withholding Requirements?

HARPTA: Hawaii Real Property Tax Act

HARPTA is Hawaii's state-level withholding requirement for non-resident sellers. If you are selling a Hawaii property and do not meet the definition of a Hawaii resident, the buyer's closing agent is required to withhold 7.25% of the gross sales price at closing and remit it to the Hawaii Department of Taxation. This withholding is not a final tax — it is an advance on any potential Hawaii capital gains tax liability.

Hawaii defines "resident" based on whether you maintained a primary residence in Hawaii for the calendar year. Part-year residents may qualify for reduced withholding. The residency test is based on your tax filing status, not simply where you physically live.

FIRPTA: Foreign Investment in Real Property Tax Act

FIRPTA is the federal equivalent for sellers who are not U.S. citizens or permanent residents. The withholding rate is typically 15% of the gross sales price (10% for properties under $1 million used as a residence). As with HARPTA, this is a withholding — not a final determination of tax liability. The actual tax owed may be significantly less, and refunds are obtained by filing a U.S. tax return.

Combined Impact

A foreign seller (subject to both) could face up to 22.25% of the gross sales price withheld at closing — before any other transaction costs. On a $2 million sale, that represents $445,000 held in withholding. Planning ahead is critical.

How to Reduce or Eliminate Withholding

• HARPTA Exemption: Hawaii residents can certify their residency status to avoid withholding entirely.
• Withholding Certificate: Sellers can apply to the IRS (and Hawaii DOR) for a certificate reducing withholding to the actual estimated tax owed. This requires advance planning — apply early in the transaction.
• Refund by Filing: File your Hawaii and/or federal tax return to claim any overage back.

→ Hawaii Dept. of Taxation  

Jolanta's Feedback

I make sure every out-of-state and foreign seller understands HARPTA and FIRPTA before we list. These are not surprises you want at the closing table. A qualified Hawaii CPA or tax attorney can help you plan for or minimize withholding. I can provide referrals to professionals who work regularly with Maui real estate transactions.