What Is HARPTA?
  By Albert Joy

HARPTA Stands for Hawaii Real Property Tax Act. It was effected on January 1, 1991, and is known as ACT 213. It was later amended and can be found in Hawaii Revised Statutes, Section 235-68. It is modeled after the Federal Foreign Investment in Real Property Tax Act, better known as FIRPTA, for foreign investors.

In simple terms, HARPTA is a law requiring that the Buyer of real property withhold 5% of the gross proceeds of the sale from the seller’s proceeds, if the Seller does not provide sufficient evidence of exemption from the act. Whether evidence is "sufficient" is incumbent upon the Buyer to be satisfied by the documents the Seller provides.

This is not a tax. It is a withholding to ensure that the proper taxes are filed and paid by the Seller upon selling the property. After filing, the seller would receive his withholding back, less any taxes due.

There are basically three methods of exemption available to Sellers.

1. They reside and file taxes in the State of Hawaii.
2. The method of property transfer is considered a "non-recognition" of gain or loss, such as a 1031 Exchange. (Must complete form N-289)
3. The property was used as a principal residence and the sale price is less than $300,000.

This bit of information is particularly useful to anyone who owns property but lives out of state, or anyone considering a purchase in Hawaii, because although you don’t normally think about this issue when buying, it will affect the disposition of your property later.

Under this act, a non-resident investor, regardless of gain or loss on the sale, could be subject to the buyer withholding 5% of the sale price of the property, until the seller files and pays his taxes.

A little-used but useful alternative method to solve this problem is to file form N-288 B with the State of Hawaii prior to the sale, and receive a statement from the State that no tax is owed. The processing time takes 2-5 weeks, and takes a lot of guesswork out of closing for both the Buyer and the Seller.

It's tough enough for our sellers who are taking a beating on the sale of property. File form N-288B well in advance, and you'll sleep better when it's time to sell your home.

	Download form N-288B here for your convenience.*
* The above uses the Adobe Acrobat Reader to view the document. If you do not have Acrobat Reader, you can download it from here.