James T. Morrison R(S)
Navigating the Tax Implications of Selling your Home in Hawaii
Selling a home in Hawaii can be a complex process, especially when it comes to understanding the tax implications of the transaction. Two important tax laws that homeowners should be aware of when selling their property in Hawaii are the Foreign Investment in Real Property Tax Act (FIRPTA) and the Hawaii Real Property Tax Act (HARPTA).
FIRPTA applies to non-resident aliens who sell real property in the United States, including Hawaii. Under this law, non-resident aliens are required to pay a withholding tax of 10% on the gross proceeds of the sale. This means that if you are a non-resident alien and you sell your home in Hawaii, 10% of the sale price will be withheld by the buyer or the closing agent and sent to the IRS. However, there are exemptions to FIRPTA, such as if the sale price is less than $300,000, and the seller certifies that the home is their primary residence.
HARPTA, on the other hand, applies to resident aliens and U.S. citizens who sell real property in Hawaii. Under this law, a 7.25% withholding tax is imposed on the gross proceeds of the sale. However, like FIRPTA, there are exemptions and exceptions to HARPTA, such as if the sale price is less than $600,000 and the seller certifies that the home is their primary residence.
Another important tax implication to consider when selling your home in Hawaii is the 1031 exchange. A 1031 exchange, also known as a like-kind exchange, allows you to defer paying taxes on the sale of your property by rolling the proceeds over into the purchase of a new property. This can be a useful strategy for homeowners in Hawaii who are looking to upgrade or downsize their home without paying taxes on the sale of their current property.
It's also important to consult with a tax professional to ensure that you comply with all the tax laws when selling your home in Hawaii. They can advise you on the best course of action for your specific situation and help you navigate the complex tax implications of selling your property in Hawaii.
In conclusion, selling your home in Hawaii can be a complex process, and there are important tax laws to consider, such as FIRPTA, HARPTA, and 1031 exchanges. Consult with a tax professional to ensure that you comply with all the tax laws and to help you navigate the complex tax implications of selling your property in Hawaii. This will help you to avoid any potential penalties and ensure that your sale proceeds are maximized. More information can be found here in this downloadable pdf