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%. 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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