Most international buyers first hear about FIRPTA and HARPTA at the closing table — right before they discover that a combined 22.25% of their sale proceeds is being held back. That is not a fine or a penalty. It is a withholding — a deposit the government holds until you file your taxes and prove how much you actually owe. But if you do not file, it is gone.
This guide explains both taxes in plain terms, shows you exactly what gets withheld under which scenarios, and walks through how to apply for reduced withholding before you close — which can mean the difference between receiving your money in weeks vs. waiting nearly a year.
⚡ Quick Take
- FIRPTA (Federal): 15% withheld from sales over $1M; 10% from $300K–$1M if buyer uses as primary residence; 0% if sale price under $300K and buyer uses as primary residence (Source: IRS Publication 515, IRC §1445)
- HARPTA (State): Additional 7.25% withheld from any seller who is not a Hawaii resident — including US citizens who don't live in Hawaii (Source: Hawaii Department of Taxation, HRS §235-68)
- Combined maximum withholding: 22.25% of gross sale price (not profit — the full price)
- You can apply for a withholding certificate before closing to reduce or eliminate withholding if your actual tax liability will be less — IRS Form 8288-B / Hawaii Form N-288B (Source: IRS.gov)
- The withheld amount is a credit against your actual tax — you file a US return and get back anything above what you owe
- HARPTA applies to all non-Hawaii residents, not just foreign nationals — a California resident selling their Oʻahu vacation home gets HARPTA withheld too
What Is FIRPTA?
FIRPTA — the Foreign Investment in Real Property Tax Act — was enacted in 1980 to ensure that foreign sellers of US real estate pay US capital gains tax on their profits. Before FIRPTA, foreign sellers could sell, collect their proceeds, and leave the country without paying any US tax on the gain.
FIRPTA works by making the buyer responsible for withholding a portion of the purchase price and remitting it to the IRS within 20 days of closing. The buyer — or the closing agent acting on the buyer's behalf — files IRS Form 8288 and sends the withheld amount to the IRS.
FIRPTA is not a tax you pay at closing. It is a forced deposit that the IRS holds until you file your US tax return. If your actual tax on the gain is less than the amount withheld, you get the difference back. We always recommend working with a CPA familiar with international tax issues for Hawaii real estate transactions.
FIRPTA Withholding Rates (2026)
| Sale Price | Buyer's Intended Use | Withholding Rate |
|---|---|---|
| Any amount | Not buyer's residence | **15%** |
| Over $1,000,000 | Buyer uses as primary residence | **15%** |
| $300,001 – $1,000,000 | Buyer uses as primary residence (statement required) | **10%** |
| $300,000 or less | Buyer uses as primary residence (statement required) | **0% — Exempt** |
(Source: IRS IRC §1445, as amended by PATH Act 2015)
The residence exemption requires the buyer to sign a statement under penalties of perjury confirming they intend to use the property as their principal residence for at least 50% of the time they occupy it during any 24-month period following the sale. If the buyer does not sign this statement, the 15% rate applies regardless of price.
What Is HARPTA?
HARPTA — the Hawaii Real Property Tax Act — mirrors FIRPTA at the state level. Hawaii enacted its version to ensure the state collects its share of capital gains tax from sellers who leave Hawaii after closing.
Key difference from FIRPTA: HARPTA applies to any non-Hawaii resident, not just foreign nationals. A US citizen living in Seattle who owns a Maui condo is subject to HARPTA withholding when they sell, even though they are an American citizen.
| HARPTA Withholding Rate | Who It Applies To |
|---|---|
| **7.25% of sale price** | Any seller who is NOT a Hawaii resident at time of sale |
| **0%** | Hawaii residents who own and occupy the property as their principal home |
Hawaii resident status means you are domiciled in Hawaii — it is not about how many months you spend there. Owning a vacation home in Hawaii while living in Japan, Canada, or California means you are not a Hawaii resident and HARPTA applies.
The buyer files Hawaii Form N-288 and remits the 7.25% within 20 days of closing. The seller receives Form N-288A as a receipt and uses it when filing their Hawaii tax return (Form N-15 for non-residents).
The Combined Impact: A Real Example
A Japanese buyer purchased a Honolulu condo in 2019 for $750,000. In 2026 they sell for $1,050,000. Here is what happens at closing:
| Tax | Calculation | Amount Withheld |
|---|---|---|
| FIRPTA (15% — over $1M) | 15% × $1,050,000 | $157,500 |
| HARPTA (7.25%) | 7.25% × $1,050,000 | $76,125 |
| **Total withheld** | **$233,625** |
The seller netted $300,000 in profit ($1,050,000 − $750,000 = $300,000). US long-term capital gains tax for a foreign non-resident is typically 20% plus the 3.8% Net Investment Income Tax. On $300,000 gain: approximately $71,400 federal + roughly $16,800 Hawaii state = ~$88,200 total tax.
The seller had $233,625 withheld but only owed ~$88,200 in total tax. They file Form 1040-NR and Hawaii Form N-15, pay what they owe, and receive a refund of approximately $145,000 — typically within 3–9 months of filing.
The withholding is not designed to be your final bill. However, if you never file the appropriate returns, the IRS and Hawaii DOT will retain the full amount withheld.
How to Reduce Withholding Before Closing
If you know your actual tax liability will be less than the withholding amount — or if you expect to take a loss on the sale — you can apply for a withholding certificate that reduces or eliminates the withholding at closing.
Federal: IRS Form 8288-B (Application for Withholding Certificate)
Have questions about this?
(808) 927-0508State: Hawaii Form N-288B
You must submit these applications before or at closing. The IRS typically takes 90 days to process; Hawaii takes 45–60 days. If closing happens before the certificate is approved, the full withholding amount is held in escrow pending IRS/state approval.
Grounds for reduced withholding include:
- Gain is smaller than the withholding amount (most common)
- Property is sold at a loss
- Seller qualifies for a non-recognition provision (1031 exchange, installment sale)
- Total tax liability will be zero
Submit as early as possible — at minimum 3 months before your expected closing date.
FIRPTA Exemptions — When No Withholding Is Required
Several situations completely exempt a sale from FIRPTA withholding:
1. Seller provides a Non-Foreign Status Certificate (IRS Form W-9 equivalent) — confirms seller is a US person, not subject to FIRPTA
2. Sale price is $300,000 or less AND buyer is using as primary residence — buyer provides residence statement
3. Seller has IRS withholding certificate reducing amount to $0
4. Property transferred for no consideration (gift, inheritance)
5. 1031 Exchange by seller — consult your tax advisor for proper structuring
What This Means for International Buyers (Not Sellers)
When you buy Hawaii real estate from a foreign seller, you are legally responsible for the FIRPTA and HARPTA withholding. If the seller is foreign and you fail to withhold, you become liable for the tax. The title/escrow company handles this in practice, but confirm it explicitly when you open escrow — ask: "Are you handling FIRPTA/HARPTA compliance?"
When you eventually become the seller (years from now), the reverse applies — now the buyer's closing agent will withhold from your proceeds. Plan for this upfront.
How to File and Get Your Refund
When you sell Hawaii property as a foreign national:
1. Receive Form 8288-A from the buyer's closing agent (federal withholding receipt)
2. Receive Form N-288A from the buyer's closing agent (Hawaii withholding receipt)
3. File Form 1040-NR (US Non-Resident Alien Income Tax Return) for the year of sale — due April 15 of the following year, or June 15 if you had no US wages
4. File Hawaii Form N-15 (Individual Income Tax Return Non-Resident) — due April 20
5. Attach Form 8288-A and N-288A as credits — your refund will be the excess withheld over your actual liability
6. Processing time: IRS refunds for 1040-NR typically take 4–9 months; Hawaii refunds take 3–5 months
Hire a CPA familiar with US non-resident taxation. The return is not complicated if your only US income is the Hawaii property, but the wrong election (failing to elect ECI status on rental income in prior years, for example) can significantly affect the outcome.
Frequently Asked Questions
Does HARPTA apply if I am a US citizen but not a Hawaii resident?
Yes. HARPTA withholds from any seller who is not a Hawaii resident at the time of sale — citizenship does not matter. A California-resident US citizen selling their Oʻahu vacation home has 7.25% withheld just like a foreign national would. The withholding is against Hawaii state income tax on the gain.
Can I avoid FIRPTA by selling to another foreigner?
No. FIRPTA withholding is triggered by the foreign status of the seller, not the buyer. If you are a foreign seller, FIRPTA applies regardless of who buys the property.
Do US-Hawaii tax treaties affect FIRPTA?
The US has tax treaties with many countries, but FIRPTA withholding applies regardless of treaty status in most cases. The treaty may affect your final tax liability (the rate applied to the actual capital gain), but generally does not eliminate the withholding requirement. There are limited exceptions — consult a US international tax attorney for your specific country's treaty.
My gain is small but the withholding is large. What do I do?
File IRS Form 8288-B and Hawaii Form N-288B as early as possible (at least 3 months before closing) requesting a reduced withholding certificate based on your actual expected tax liability. Provide your calculation showing the gain and expected tax. The IRS typically approves reduced certificates within 90 days.
What if the closing agent does not handle FIRPTA properly?
The buyer becomes personally liable. This is rare with reputable Hawaii title companies, but confirm in writing before closing that the escrow company will handle FIRPTA and HARPTA compliance and will remit withheld amounts on the required IRS and Hawaii forms.