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Withholding of the 5% HARPTA is not required for a disposition of Hawaii real property if the transferor (seller) furnishes to the transferee (buyer) a certification (Form N-289) that establishes:

1. The transferor is a resident person;
2.By reason of a non-recognition provision of the Internal Revenue Code that the transferor is not required to recognize gain or loss with respect to the transfer; or
3. For the year preceding the date of the transfer, the property has been used by the transferor as a principal residence and the amount realized for the property does not exceed $300,000.

Form N-289 Certification for Exemption from the Withholding of Tax on the Disposition of Hawaii Real Property.
This is one of the forms signed by the seller as part of the escrow process if the seller qualifies for one of the three exemptions listed above. If the seller is doing a 1031 exchange, they qualify under #2 above for an exemption from the withholding.

Form N-288B Application for Withholding Certificate for Dispositions by Nonresident Persons of Hawaii Real Property Interest.

This form is filed to receive a waiver from all or part of the HARPTA withholding. It must be completed and submitted to the State of Hawaii with the waiver approved by the State of Hawaii prior to the close of escrow. You then provide this certificate to escrow. File this waiver if either of the following applies:

1.The transferor/seller will not realize any gain with respect to the transfer.
2.There will be insufficient proceeds to pay the withholding required after all costs, including selling expenses and the amount of any mortgage or lien secured by the property.

You can not file form N-288B after the date of transfer. Also, even if you qualify for the waiver, you are still required to file an income tax return whether or not you derive a taxable gain.