The Biggest Misconception About Selling Maui Property as a Foreign Resident

One of the biggest misconceptions about selling Maui property as a foreign resident is this:

People think that the US government is going to tax you like crazy if you’re from Canada. I get asked about this all the time, and it is not true.

What they do is a withholding when you sell your property in Maui. That is something that is often misunderstood by our Canadian buyers and, in fact, it’s for all our foreign buyers but because so many Canadian buyers come to Maui, that’s who I hear it from so often.

What is HARPTA & FIRPTA?

We have what is called HARPTA and FIRPTA. FIRPTA is the federal real estate tax system and HARPTA is the Hawaii real estate tax system. What it does is it withholds money from the sale for foreign property owners and non-Hawaii property owners, so if you’re from Canada you qualify for both HARPTA and FIRPTA.

Why Do We Have HARPTA and FIRPTA?

This system is in place because the government can’t go back and claw back the taxes that are due from you from the capital gains once you sell your property and you’re in another country, so their goal is to just get what’s due to them- not any more not any less; the same amount of taxes that are paid by the U.S citizens when they sell and have a capital gain experience. This withholding system is to make sure that all foreign Nationals put in their fair share and then pay their taxes just like they would pay at capital gains on their property in Canada. I know in Canada when you sell a property you have a capital gains tax in the state of Hawaii and the United States it’s the same.

What is the Withholding Rate and Tax Rate?

They do hold fifteen percent for federal and seven and a quarter percent for the Hawaii tax withholding. Again, it is not a tax, so when you look at 22 and a quarter percent, that’s not what you’re being taxed that’s simply what’s being withheld from the sale.

Currently the capital gains tax in the U.S is around 20 depending on your income bracket and for the state of Hawaii it’s somewhere between seven and nine percent, but those are both questions you want to talk to your Tax Advisor and get more information about how selling your property in Hawaii makes a difference on your financial return When you go to sell.

When you file your tax returns with both the state of Hawaii and the U.S federal government the amount of tax is due to you based on your capital gain based on your profit will be taken out of that withholding and the balance will be refunded back to you.

Once again, they’re not collecting any more taxes from you than they are from me when I sell a property it’s just the way that they have found it’s the best way for them to collect the taxes there are ways for you to get it back sooner than the waiting till your tax return is done and we can talk about all of that and your escrow officer can give you guidance on that as well there are a couple extra forms you would fill out after the transaction closes. I hope that answers your question and helps if you’d like more information about Maui real estate please give me a call I’m Tom Tezak with Hawaii life I’d love to be your resource and your guide here on the island of Maui.