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Will Your Next Real Estate Transaction Be Adversely Affected by FIRPTA and HARPTA?

If you’re a real estate agent, can your client be adversely affected?

What is FIRPTA? HARPTA?

FIRPTA is a federal law designed to make sure foreign parties who sell real estate in the United States don’t avoid paying income taxes. Hawaii has a similar law called HARPTA.

  • Under FIRPTA, buyers of real estate owned by foreign parties must withhold 15% of the purchase price and send to the IRS.
  • Under HARPTA, buyers of Hawaii real estate owned by nonresidents must withhold and pay to the State of Hawaii 5% of the purchase price.

How does the process work, and how can personal finances be affected?

  • At closing, the buyer is responsible for setting aside the correct percentages of the total purchase price.
  • If those funds aren’t withheld and paid to the proper governing bodies, both the IRS and the State of Hawaii will assess the buyer taxes equal to the amounts that should have been withheld.
  • Even if a seller is compliant with federal tax filings and owes no taxes on the sales, the seller may have to wait up to 18 months for a federal tax refund.
  • There are a few exemptions, but determining if a transaction qualifies can be tricky.

What Law Offices of Christy Lee, P.C., can do for you:

No matter whether you’re the buyer, the seller, or a real estate agent involved in the transaction, Law Offices of Christy Lee, P.C., will protect your best interests while we navigate the process together.

  • For the buyer, we’ll help ensure that you meet your obligations toward withholding, so that you aren’t faced with thousands of dollars in tax assessments rightfully belonging to the seller. That includes obtaining necessary information for reporting the purchase, reviewing the circumstances to determine whether exemptions apply, withholding the funds for the IRS and the State of Hawaii, and completing all other required steps. This way, you can enjoy your new purchase relatively stress-free.
  • For the seller, we’ll first ensure that you have an individual tax identification number that allows you to transact the sale. We’ll assess your circumstances to determine whether exemptions apply. We’ll also apply for withholding certificate as appropriate and assess your tax liability, so that only the necessary amount is withheld from the sales proceeds. And if required, we’ll help prepare your tax return in order to obtain a refund.

If you’re considering purchasing or selling real estate in Hawaii, or if you represent clients in sales, give Law Offices of Christy Lee, P.C., a call. We’re the tax boutique specifically designed for the complex needs of the Hawaii taxpayer – we’re approachable, knowledgeable, and highly trained in complex tax resolution and proactive solutions. We look forward to working with you.

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