What is “FIRPTA”?
“FIRPTA” stands for the Foreign Investment in Real Property Tax Act, a federal law.

General Rule
Under the FIRPTA withholding provisions of Code Section 1445, the buyer or transferee of any U.S. real property interest is required to (i) withhold and deduct a tax equal to 10% of the amount realized by the seller or transferor upon the disposition of the property regardless of the amount of cash other­wise present in the transaction and (ii) file Forms 8288 and 8288-A to report and transmit the amount withheld to the Internal Revenue Service (“IRS”), unless one of five exemptions applies.

However, the transferee’s compliance with the withholding requirement does not relieve the transferor from its FIRPTA tax liability. The withholding tax is designed only to approximate the transferor’s tax on net gain and such transferor would still be required to file a federal income tax return with the IRS for the year in which the sale occurs and either (i) obtain a refund of any amount over withheld or (ii) make additional payments required in excess of the amount of tax previously withheld.

What is “HARPTA”?
“HARPTA” stands for the Hawaii Real Property Tax Act, a state law.

General Rule
Under the Hawaii withholding requirement, the buyer or transferee of any Hawaii real estate is re­quired to (i) withhold and deduct a tax equal to 5% of the amount realized by the seller or transferor upon the disposition of the property and (ii) file Forms N-288 and N-288A to report and transmit the amount withheld to the Hawaii Department of Taxation within 20 days of escrow closing, unless one of four exemptions apply.

Internal Revenue Service Tax forms and instructions are available at: www.irs.gov

State of Hawaii Tax forms and instructions are available at: www.state.hi.us/tax/al_forms.htm