The Hawaiʻi Real Property Tax Act, also known as “HARPTA,” is a withholding tax on sales of Hawaiʻi real property by non-resident persons. For DVC owners, if you own points at Aulani and are not a Hawai’i resident, you are subject to taxation when you go to sell your ownership.
Per the State of Hawaiʻi’s Department of Taxation: “Hawaiʻi residents and nonresidents alike must pay Hawaiʻi income tax on capital gains recognized on the sale of real property located in Hawaiʻi unless the gain can be excluded under Hawaiʻi income tax law. Many nonresidents never realized that they were subject to Hawaiʻi taxation and did not file a Hawaiʻi income tax return or pay the tax due when they sold a Hawaiʻi property. HARPTA legislation requires a purchaser to withhold a percentage of the sales price when acquiring Hawaiʻi real property from a nonresident seller and remit the amount withheld directly to the State.”
As of September 15, 2018, the “HARPTA” withholding rate for nonresidents of Hawaii has increased from 5% to 7.25% of the amount realized. The official announcement from the Hawaii Department of Taxation is below.
Re: DEPARTMENT OF TAXATION ANNOUNCEMENT NO. 2018-11
Change in Rate on Withholding of Tax for the Disposition of Hawaii Real Property Occurring on or After September 15, 2018
This Announcement summarizes Senate Bill (S.B) 508, S.D. 1, H.D. 1, C.D. 1, relating to the withholding of tax for the disposition of Hawaii real property by nonresident persons, commonly referred to as “HARPTA.”
Section 235-68, Hawaii Revised Statutes (HRS), requires every transferee or buyer of Hawaii real property to withhold and pay to the Department of Taxation a percentage of the amount realized on the disposition of the real property, unless the disposition is exempt from withholding. S.B. 508, S.D. 1, H.D. 1, C.D. 1 amends section 235-68, HRS, by changing the withholding rate from 5 percent to 7.25 percent. The change in rate will apply to all real property dispositions that occur on or after September 15, 2018.
In sum, a transferee or buyer must withhold 7.25 percent of the amount realized by the transferor on the disposition of Hawaii real property if the transfer occurs on or after September 15, 2018, unless an exemption applies.