Dear Investors:
Statistics is worth a thousand words. Honolulu, Hawaii is always the top-spot for both national and international most-sought-after city for prime real estate opportunities in the world. In other words, Oahu real estate average pricing has always been appreciating. To explore Honolulu real estate investment options (be it residential or commercial), I have the expertise and network in sourcing the right investment property to diversify your financial portfolio. Please contact me for any real estate acquisition at your earliest convenience. I look forward to finding your next, best investment property in Oahu.
Just remember, whenever the economy is volatile, that’s the best time to shop for great investment bargain!
Yours Truly,
JASON WONG
REALTOR® Broker, Lic #RB-22819
CENTURY 21 iProperties Hawaii
Frequently Asked Questions
Q1: What are the customary closing costs to complete a selling side of a real estate transaction?
A1: Here are the published items under the current real estate contract template distributed by the Honolulu Real Estate Board (the list is not all-inclusive as some other additional cost items may incur due to property, title or third party’s special requirement):
– 60% of the premium for standard coverage title insurance
– Cost of drafting of conveyance documents and bills of sale
– Cost of obtaining Seller’s consents
– 50% of escrow fee
– Seller’s notary fees
– Cost of required staking or survey
– Recording fees to clear Seller’s title
– FHA or VA mandatory closing fees
– Conveyance tax
– FIRPTA (Federal withholding tax)/HARPTA (State withholding tax)
Q2: What is FIRPTA?
A2: FIRPTA: Foreign Investor Tax Act
The Foreign Investment in Real Property Tax Act (section 1445 of the IRC code) of 1980 (“FIRPTA”) provided that foreign investment in U.S. real estate would be subject to U.S. capital gains tax on dispositions of U.S. real property interests [defined as (a) any interest in U.S. real property or (b) any interest in a U.S. corporation in which 50% of its assets constitute U.S. real property interests. This Act was updated in by the Protecting Americans for Tax Hikes Act of 2015.
GENERAL RULE:
Under the law, the Buyer or transferee of any U.S. real property interest is required to
(a)withhold and deduct a tax equal to 10% or 15% 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
(b) file Forms 8288 and 8288-A to report and transmit the
amount withheld to the 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 tax is designed only to approximate the transferor’s tax on net gain and is still required to file a federal income tax return with the IRS for the year in which the sale occurs and either (a) obtain a refund of any amount over withheld or (b) make additional payments required in excess of the amount of tax previously
withheld.
EXEMPTIONS FROM WITHHOLDING:
1. Transferor furnishes Non-Foreign Status Certification. No withholding is necessary if the seller or transferor furnished to the transferee a certification stating that the transferor is not a foreign person and stating their U.S. taxpayer identification number. The transferee must keep such certification for at least 5 years.
2. Purchase Price for Residence. If the amount realized (generally the sales price) is $300,000 or less, AND the property will be used by the buyer as a residence, no sums need be withheld or remitted. If the amount realized exceeds $300,000 but does not exceed $1,000,000, AND the property will be used by the buyer as a residence, then the withholding rate is 10% on the full amount realized. If the amount realized exceeds $1,000,000 or the
residence will not be used by the acquirer as a personal residence, then the withholding rate is 15% on the entire amount.
3. Transferee Receives IRS Withholding Certificate. The withholding may be reduced or eliminated pursuant to qualifying statement issued by the IRS. The IRS in cases may issue this certificate where (a) the transferor is exempt from U.S. tax, (b) an agreement for the payment of tax is entered into with the IRS, or (c) reduced withholding is appropriate. The IRS must act upon a completed application for a withholding certificate not later than the 90th
day after its receipt.
4. Notice of Non-recognition Treatment. No tax is necessary if transferee (a) receives the appropriate notice from transferor that the transferor is not required to recognize gain or loss with respect to the transfer in compliance with the requirements of Treasury Regulations 91.1445-2(d)(2) and (b) provides a copy of the notice to IRS within 20 days of the property
transfer. Have a Tax Attorney review the notice to ensure compliance with requirements of the exemption before closing.
5. U.S. Corporation not USRPI. Sale of stock in a U.S. corporation may be exempt from withholding under certain circumstances. Consult with your attorney on matters related to the sale of stock.
Q3: What is HARPTA?
A3: HARPTA: Hawaii Real Property Tax Act: In order to promote a greater level of compliance by nonresidents of Hawaii (whether U.S. persons or foreigners) in reporting income from sales of real property located in Hawaii, the Hawaii legislature enacted (and recently amended Section 235-68, Hawaii Revised Statutes (“HRS”), requiring every Buyer of Hawaii real estate to deduct, withhold and pay to the Hawaii Department of Taxation 7.25% of the amount realized by the Seller or transferor of Hawaii real estate. This withholding requirement, as amended, is effective on August 1, 1991.
This 5% withholding tax is designed to enforce Hawaii state income taxes on the sale or disposition of Hawaii real estate in the same manner a the enforcement provisions of The Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”). Similar to FIRPTA enforcement provisions, the state taxwithholding requirement would not increase the amount of income tax paid by nonresidents since the amount withheld will be claimed as a payment on the Hawaii nonresident income tax return.
GENERAL RULE:
Under the Hawaii withholding requirement, the Buyer or transferee of any Hawaii real estate is required to (1) withhold and deduct a tax equal to 7.25% of the amount realized by the Seller or transferor upon the disposition of the property and (2) 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.
EXEMPTIONS FROM WITHHOLDING:
1. Transferor furnishes Hawaii Resident Certification. No withholding is necessary if the Seller or transferor furnishes to the transferee a property completed Form N-289 stating (a) the transferor’s taxpayer identification number and (b) that the transferor is a Hawaii resident. However, this exemption will not apply if the transferee has actual knowledge that the information on the Form N-289 is false. (Note that the recent amendments to the definition of Hawaii resident for purposes of the withholding required by HRS 9235-68 would include foreign corporations and partnerships which are registered with the Hawaii Department of Commerce and Consumer Affairs to do business in the State of Hawaii.)
2. Transferor’s Affidavit of Principle Residence. No withholding is necessary if the transferee receives an affidavit by the transferor stating (a) the transferor’s taxpayer identification number, (b) that the transferor used the property as a principle residence for the year preceding the date of the transfer and (c) the sales price for the property does not exceed $300,000.
3. Transferee Receives Hawaii Withholding Certificate. (a) The withholding under HRS 9235-68 may be reduced or eliminated pursuant to a “withholding certificate” issued by the Hawaii Department of Taxation. A withholding certificate may be issued by the Hawaii Department of Taxation upon receipt of Form N-288B establishing that either (1) the transferor will not realize any gain with respect to the transfer or (2) the transferor will have insufficient proceeds to pay the withholding required by HRS 9235-68 after payment of all costs, including selling expenses and the amount of any mortgages or liens secured by the property. (b) The withholding may also be reduced or eliminated pursuant to a “written agreement” with the Hawaii Department of Taxation. Persons who engage in more than one real property transaction in a calendar year or to whom meeting the withholding requirements are not
practicable are eligible to enter into these written agreements.
4. Notice of Non-recognition Treatment. No withholding is necessary if transferee receives from transferor a properly completed Form N-289 stating (1) that transferor is not required to recognize gain or loss with respect to the transfer and (2) briefly describing the transfer and summarizing the law and facts supporting transferor’s claim. Non-Hawaii residents doing 1031 exchanges of real estate may consider this option to avoid withholding.