HARPTA & FIRPTA: Hawaii
If you are Canadian who is selling property in Hawaii, the sale is governed by:
1 HARPTA: (Hawaii Real Property Tax Act)
HARPTA is a Hawaii state law enforced by the Department of Taxation that ensures non-residents also meet their Hawaii tax obligations from a disposition of property in Hawaii.
2 FIRPTA (Foreign Investment in Real Property Tax Act)
FIRPTA is a U.S. federal law that the IRS enforces to ensure that non-residents, in our case Canadians, meet their federal tax obligations from the disposition of U.S. property.
Note: Dispositions include not only a sale, but also an exchange, liquidation, gift, transfer, or redemption. Our discussion refers to a sale, which is the most common disposition of U.S. property.
Steps in Selling Property in Hawaii
1 List Your Property for Sale & Accept an Offer
After listing your property with a realtor, you then select a title/escrow company that understands how to work with Canadian sellers and with the FIRPTA & HARPTA requirements in Hawaii.
2 Determine Your FIRPTA & HARPTA Withholding Rates & Exemptions
To make sure that the IRS and the Hawaii Department of Taxation are able to collect any taxes owing, the buyer is designated as the withholding agent. The buyer’s title/escrow agent’s responsibility is to withhold the required amount from the purchase price and remit the withholdings to both tax authorities.
The HARPTA withholding rate is 7.25% of the sale price, although there are some exemptions (see below).
3 File all FIRPTA & HARPTA Compliance & Withholding Forms
After all conditions and contingencies have been removed and the sale of your California property is firm, the relevant FIRPTA and Form 593 compliance forms need to be completed. This must be done prior to closing.
FIRPTA: see Forms 8288, 8288-A, and 8288-B
HARPTA: see forms below.
4 ITIN Number Requirement
An Individual Tax Identification Number (ITIN) is required by all Canadians before filing their U.S. federal and state tax returns. The amount withheld from your sale cannot be properly applied, and possibly refunded, to your account until your tax returns are filed.
5 File All Tax Returns
Each of the sellers is required to individually file these tax returns:
- S. federal personal income tax return for non-residents.
- Hawaii personal income tax return for non-residents.
- Canadian personal tax return.
HARPTA Withholding & Exemptions Forms
N-289 – AFFIDAVIT
You must provide the buyer with this form certifying where you live. You are exempt from the HARPTA withholding if, along with being a Canadian resident, you are also a Hawaii resident.
Form N-288 – HARPTAExemptions
In addition to the exemption above, you are also exempt from the 7.25% withholding if your property:
- Was a principal residence for the year preceding the sale, and
- The proceeds of the sale are less than $300,000.
Form N-288A – HARPTA Withholding
Each seller who completes form N-288 must also complete N-288A, disclosing the amount of the withholding.
The buyer attaches Copy A, along with payment of the withholding, to the Hawaii Department of Taxation, and sends you Copy B.
N-288B – Other Exemptions
Once the sale of your property is firm, you can apply for a waiver of the withholding using form N-288B if either of the following applies:
- You will not realize a gain on the sale. You must provide calculations and documented justification of the capital gain.
- There will be insufficient proceeds from the sale to pay the withholding amount. You must provide the escrow statement showing the proceeds, selling expenses, and the payment of any mortgage(s).
Copy A is sent to the Department of Taxation and you retain copy B.
Form N-288C – HARPTA
After the closing of the sale, you may apply for a refund of the amount of withholding in excess of your tax liability. You can only apply if:
- You have received notification from the Department of Taxation that the withholding was received, and
- Only ifthe Hawaii income tax return (Form N-15) is not yet available.
Your One-Stop Service When Selling Property in Hawaii
Navigating all the HARPTA & FIRPTA requirements for selling your Hawaii property isn’t easy. But when you work with FIRPTA CANADA, you can relax.
Like our country’s national animal, we work industriously on your project until it’s successfully completed. We will:
- File all required forms.
- Provide your title or escrow company with all documentation.
After the closing of your sale, we will do the):
- Assist you in obtaining an ITIN (Individual Taxpayer Identification Number) for each of the owners of the property. FIRPTA CANADA is an approved IRS Certifying Acceptance Agent (CAA).
- File the U.S. federal and Hawaii tax returns, and Canadian tax returns for each seller.
Get Started Today
Sit back and relax, and let us handle your transaction from start to finish.
To make it as easy as possible for you, we can work with you in person or virtually, or a combination of both. As your fellow Canadians, we won’t let you down.
Contact us today to start the process and we’ll respond within two business days, unless it is tax season as we may take a bit longer.