What Are FIRPTA and HARPTA? What Every Buyer & Seller Should Know

If you're buying or selling real estate in Hawaii, you've probably heard the acronyms FIRPTA and HARPTA come up during escrow—but what exactly do they mean?

Let’s break it down in simple terms so you can feel confident navigating your next transaction.

🏛️ FIRPTA: The Federal Withholding Rule

FIRPTA stands for the Foreign Investment in Real Property Tax Act, a federal law designed to ensure foreign property owners pay capital gains tax when they sell U.S. real estate.

• Who it applies to: Non-U.S. citizens or foreign entities selling U.S. real estate

• What happens: Buyers are required to withhold 10-15% of the gross sale price and send it to the IRS

• Why it matters: This is not an extra tax, but a prepayment of the seller’s estimated capital gains tax

• What’s needed: Foreign sellers must file a U.S. tax return to report the sale, and possibly claim a refund or pay any balance owed

  
  

✅ Common Exemption: If the seller provides a Non-Foreign Affidavit stating they are a U.S. person (under penalty of perjury), no FIRPTA withholding is required.

🌺 HARPTA: Hawaii’s Version of FIRPTA

HARPTA stands for the Hawaii Real Property Tax Act, a state law that requires withholding on the sale of real estate by non-Hawaii residents, even if they are U.S. citizens.

• Who it applies to: Anyone not considered a resident of Hawaii for tax purposes

• What happens: Buyers must withhold 7.25% of the gross sale price and send it to the Hawaii Department of Taxation

• Why it matters: Like FIRPTA, this is a withholding to cover potential Hawaii state income tax on capital gains

  
  

✅ Common Exemption: If the seller provides a Hawaii Resident Certification or qualifies for another exemption (e.g., 1031 exchange, sale under $300,000 and used as primary residence), HARPTA may not apply.

🧾 Can You Get the Money Back?

Yes. Both FIRPTA and HARPTA are withholding laws, not additional taxes. If too much was withheld, sellers can file a tax return to potentially receive a refund.

💡 Tip: Sellers can also apply for a withholding certificate before closing to reduce or eliminate the amount withheld upfront.

🤝 Why Buyers Should Pay Attention Too

Both FIRPTA and HARPTA make the buyer responsible for collecting and remitting the tax withholding. If the buyer fails to do so properly, they can be held liable—even years after the sale. That’s why it's essential to work with experienced professionals to handle these requirements correctly.

🏡 Helping You Navigate the Process

As a REALTOR® with 20 years of experience in Hawaii real estate, I understand how overwhelming real estate regulations can feel—especially for out-of-state and international sellers.

If you’re planning to buy or sell in Hawaii and want guidance on FIRPTA, HARPTA, or other key details, I’m here to help ensure your transaction runs smoothly and stays compliant.

📞 Call me today at (808) 741-7155. Let’s talk about your goals, and I’ll help you understand what to expect—so you can move forward with confidence.

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Practices may vary based on state and local law. Consult your real estate professional, tax professional, and / or an attorney for details about state law where you are purchasing a home.