![]() This federal law allows an owner to exclude up to $250,000 of gain (single) or up to $500,000 of gain (married) providing they have owned and occupied a property for at least two out of the past five years. Is Hawaii tax law for the sale of a personal residence similar to the federal law i.e., the Taxpayer Relief Act of 1997? If you have not been paying Hawaii GET on your rental receipts, you may have to pay past GET plus a penalty/interest in order to have form N-288B be approved. NOTE: Form N-288B has a section where the owner indicates if the property has been a rental and if so, the owner’s Hawaii General Excise Tax (GET) number for the property. NOTE: The state may adjust the withholding to a lesser amount if there is a gain but insufficient proceeds available to pay 7.25% of the sales price. The owners were reimbursed after the sale: however, they could have avoided any withholding had they submitted a better package. We have had absentee owners agree to pay the withholding when there was no gain merely to be able to close their transactions as scheduled. It is relatively common for the state to reject applications because of insufficient documentation. NOTE: Most absentee owners should have a CPA or professional tax advisor prepare their N288B form to document a capital loss. If form N-288B is rejected by the state, there is usually insufficient time to submit a revised form and still meet the scheduled closing date. Since an estimated closing statement prepared by escrow has to accompany form N-288B, it is usually submitted relatively late during the escrow process. NOTE: To allow time for approval, form N-288B must be submitted to the state at least ten business days prior to closing. This paperwork must include (as applicable): (a) a copy of the closing statement when the property was purchased (b) documentation showing depreciation that has been claimed (c) documentation for any capital improvements (d) documentation for deferred gain from any prior sale(s) that adjusted the owner’s buying basis and (e), an estimated closing statement prepared by escrow. When either of these occurs, escrow will not close the transaction until a Hawaii form N-288B has been approved by the state (unless the seller agrees to pay the withholding). If the sale creates a capital loss or the proceeds available are insufficient, the owner must submit appropriate paperwork to the state. The withholding may not be required if there are insufficient proceeds from the sale or if there has been a capital loss rather than a capital gain. What if there are insufficient proceeds from the sale to pay the withholding or if there is a loss on the sale rather than a gain? Hawaii has no provision for filing a form prior to closing so the correct amount will be withheld. The state will reject form N-288C if form N-15 is available. If the appropriate Hawaii income tax return (ex: form N-15) for the year is available, then the owner should file the appropriate tax return instead of filing form N-288C. If the 7.25% of sales price withholding is too large, the owner files a Hawaii form N-288C after closing. If the collected amount is too large, how do you obtain a refund? The Hawaii capital gains tax on real estate is 7.25% of the gain plus depreciation. ![]() What is the actual Hawaii capital gains tax? ![]() ![]() The amount collected under the HARPTA law is 7.25% of the sales price. How much is collected under the HARPTA law? However, the fact that an owner may be exempt from the HARPTA law does not also exempt the owner from paying state capital gains taxes that may be due Hawaii. ![]() NOTE: Some absentee owners may be exempt from the HARPTA law. Prior to the passage of HARPTA, the state had no means of collecting such taxes unless the absentee owner filed a Hawaii income tax return for the year of the sale. Under HARPTA, an estimate of an owner’s capital gains tax that will be due Hawaii is withheld at closing. The Hawaii law is similar to laws passed by other states (e.g., California) as well as a federal law that applies to non-U.S. HARPTA is a law, not a tax, a common misunderstanding. HARPTA is an acronym for the Hawaii Real Property Tax Law. ![]()
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