Q: What is HARPTA, and does it apply to my transaction?
A: HARPTA stands for the "Hawaii Real Property Tax Act". Every person or entity selling real estate in Hawaii is subject to HARPTA. It's a withholding of 7.25% of the gross sales price on the Hawaii property. Some people and entities are allowed an immediate waiver of HARPTA such as individuals who are bonafide Hawaii residents on the date the sale closes. Additional reasons that justify an immediate HARPTA waiver include sales that are "nonrecognition provisions" such as 1031 exchanges, or sales within a self-directed IRA or 401k. Those individuals and entities who are not eligible for an immediate HARPTA waiver may apply for a waiver by completing Form N-288B, and possibly the companion Form N-103. Those sellers who are not eligible for an immediate waiver or aren't eligible to apply for one will have the 7.25% HARPTA withheld. But they can apply for an early refund in the year they close their sale. They also have the option to skip the early refund process and simply file a Hawaii income tax return in the following year.
Q: I'm a military servicemember stationed in Hawaii. I own a home in the state, but I am being transferred to a base on the mainland, so I'm selling my home. Am I subject to HARPTA?
A: Military servicemembers who claim Hawaii as their state of legal residency can get an immediate waiver of HARPTA. But this only applies to those who are taxed by Hawaii as residents and have Hawaii state tax withholdings on their military pay. If the servicemember is not a Hawaii resident, they may be able to apply for a waiver of HARPTA, but they are not allowed to claim Hawaii residency to get an immediate waiver of HARPTA.
Q: I'm not a Hawaii resident, but my real estate in the Hawaii is owned by my trust. Can I get a waiver of HARPTA if my trust is a "resident trust"?
A: Trusts may be classified as "revocable" or "irrevocable". In general, when a trust is revocable and the grantors of the trust are still alive, the residency of the grantors is the residency of the trust. For irrevocable trusts, the determination of the residency is based on Hawaii Revised Statutes 235-1.17: "Resident trust" means the same as in section 235-1, HRS. (1) If the administration of the trust is carried on wholly in the State the trust shall be deemed a resident trust irrespective of the place of residence of the fiduciary or fiduciaries. (2) If the sole fiduciary, or all of the fiduciaries if more than one, are residents, domestic corporations, or partnerships formed under Hawaii law, the trust shall be deemed a resident trust irrespective of the place where the trust is administered. (3) If the administration of the trust is partly carried on in the State, the trust shall be deemed to be a resident trust if one-half or more of the fiduciaries are residents, domestic corporations, or partnerships formed under Hawaii law. Link to statute: https://www.law.cornell.edu/regulations/hawaii/Haw-Code-R-SS-18-235-1-17
Q: What does HARPTA Help LLC do and how can your company help us?
A: We're a specialized CPA firm that helps nonresident home sellers with the tax withholding. We help people with HARPTA waivers, reductions, and early refunds, and we help home sellers with any general excise tax or transient taxes. We are the only firm in the state that works exclusively in this area, and since 2020, we've filed over 1,500 HARPTA forms. We do more HARPTA filings than all other Hawaii tax firms combined. Over 99% of our waiver and reduction filings are approved.
Q: I just moved to the mainland and I'm selling my Hawaii home. Can I still claim residency for HARPTA purposes?
A: Hawaii published a document called the "Tax Information Release 97-1: Determination of Residence Status (link: https://files.hawaii.gov/tax/legal/tir/1990_09/tir97-1.pdf). In addition, I've posted a YouTube video about the topic: https://youtu.be/t8isblM0gow?si=DYq--5-U2YJXW-ci Essentially, there are two ways to establish Hawaii residency: Domicile or Physical Presence. If the person is claiming Hawaii is their domicile, that is the belief that Hawaii is their "true, fixed, permanent home..." Residency by physical presence is also possible, but the resident's presence may not be "temporary or transitory". If the seller is currently in Hawaii, but intends to leave in the foreseeable future, they cannot use their physical presence in the state as justification for Hawaii residency It's also important to consider that if a person moves to the mainland and starts to earn income while in another state, if they want to continue to declare Hawaii residency, it may be possible by "domicile", but that also means that Hawaii has a right to tax their "worldwide income", including the income they earn in another state. So for that reason, most people moving away from Hawaii usually choose to end their Hawaii residency as soon as they are able - primarily because Hawaii is a state with high taxes.