FIRPTA Explained: What Foreign Sellers Need to Know Before Selling Hawaii Real Estate

If you’re a foreign seller with property in Hawaii, there are two withholdings you need to understand before you get to the closing table: HARPTA and FIRPTA.

In my last two videos I covered HARPTA in depth, including what HARPTA it is and the times when it may not apply.

FIRPTA (Foreign Investment in Real Property Tax Act) is a federal law enacted to make sure foreign sellers pay their Capital Gains tax on the sale of U.S. property. It’s a 15% withholding. Add Hawaii’s HARPTA at 7.25% and you’re looking at a total of 22.25% withheld from your proceeds at closing. That’s not a small number, and it catches a lot of sellers off guard.

The withholding is handled by the title company at closing, and it actually serves as a protection for the buyer too. If that amount goes unpaid, the responsibility can fall to the new owner. That’s not a situation anyone wants to be in.

There are some circumstances where exemptions may apply, like if the seller is taking a loss on the sale, but those aren’t guaranteed. And yes, there are cases where sellers slip through without paying, usually in off-market transactions or when the agents involved aren’t up to speed on the requirements. That’s a risk for everyone at the table.

The bottom line: if you’re a foreign seller in Hawaii, make sure you’re working with someone who knows this process inside and out.

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Aloha!  

Lynda Gill RS Lic. 63088  

Hawai’i Life Real Estate Brokers 808.346.0056  

LyndaGill@HawaiiLife.com