Both withholdings are prepayments toward income tax on the sale, not the tax itself. Below is the decision path Dennis Rush walks sellers through, checked against the Department of Taxation’s own guidance. Everything here is current as of October 21, 2026 (the Department’s REV. 2025 forms and the IRS’s January 2026 Form 8288 instructions), and the page is updated when the State or the IRS changes the rules.

HARPTA withholds 7.25 percent of the price when the seller is not a Hawaii resident

HARPTA, short for the Hawaii Real Property Tax Act, is the common name for the withholding in Hawaii Revised Statutes section 235-68. Every buyer of Hawaii real property must withhold 7.25 percent of the amount realized and pay it to the Department of Taxation (DOTAX) unless the seller furnishes an exemption. The rate rose from 5 percent for dispositions on or after September 15, 2018, and the current statute and REV. 2025 forms still state 7.25 percent.

The amount realized is generally the sales price, plus the value of any other property the seller receives and any debt the buyer assumes. The buyer pays the withholding with Forms N-288 and N-288A by the 20th day after the transfer date, the day the sale closes and title passes, in the words of Tax Facts 2010-1. A buyer who fails to withhold is liable for the amount. In practice escrow withholds it from the seller’s proceeds, because the standard Hawaii purchase contract has escrow withhold unless the seller provides an exemption or waiver. Our guide to selling a luxury home or condo in Wailea and Makena covers the conveyance tax, a separate tax on the transfer, and the rest of a seller’s costs.

Residency is the first question, and it is tested at closing

The Department calls it a common misperception that HARPTA does not apply when the seller is a Hawaii resident. It does apply: a resident seller avoids withholding only by giving the buyer Form N-289. An individual is a resident if domiciled in Hawaii or living here for other than a temporary or transitory purpose, and HRS section 235-1 presumes residency after more than 200 days in Hawaii in a taxable year, a presumption a person can rebut. The Department tests residency when the sale closes (TIR 2017-01), so a seller who moved to the mainland before closing is a nonresident for that sale. Owning Maui property does not by itself make anyone a resident.

The withholding is a prepayment, not the tax

HARPTA is not a tax, in the Department’s words, but an estimated tax payment credited to the seller. Every seller files a Hawaii income tax return for the year of sale, withheld or not, and only the seller, never escrow, can request a refund of the excess.

The decision path Dennis gives sellers, checked against DOTAX

Dennis Rush gives sellers a one-page HARPTA chart on his own letterhead. Its questions run in the order below. After each is the rule as DOTAX states it in Tax Facts 2010-1 (revised April 2025) and the REV. 2025 form instructions, which govern wherever the chart simplifies.

1. Is the seller a Hawaii resident or entity? If yes, Form N-289. DOTAX: resident persons are resident individuals, entities formed in Hawaii or registered to do business here, and resident trusts and estates. A single-member LLC not taxed as a corporation is disregarded, so its owner’s residency decides. Form N-289 goes to the buyer, not to DOTAX.
2. If not, does an exception under Hawaii or federal law apply, such as a 1031 exchange? If yes, Form N-289. DOTAX: a nonrecognition provision of the Internal Revenue Code or a U.S. treaty, with a description of the transfer and a summary of the law and facts. If any gain is recognized, Form N-289 cannot be used and the full 7.25 percent is withheld.
3. Is the seller selling at a loss? If yes, Form N-288B with supporting documents at least 10 business days before closing. DOTAX: Form N-288B covers a sale with no gain at all, a sale whose proceeds are too small to pay the withholding after costs and liens, and a former main home whose entire gain is excluded under section 121 (with Form N-103). It is never approved after the transfer date.
4. Was the property the seller’s principal residence for the last 12 months, at a price of $300,000 or less? If yes, Form N-289. DOTAX: principal residence for the year before the transfer, and an amount realized of $300,000 or less.
5. If none applies, the buyer withholds 7.25 percent, through escrow, and pays it by the 20th day after the transfer date.
6. Does the seller want an early refund? If yes, Form N-288C. DOTAX: a tentative refund, filed only after the Department confirms it received the withholding and while the year’s Hawaii return is not yet available.

Where the chart simplifies, and the rule as DOTAX states it

Five Hawaii forms and five federal documents carry the process

Hawaii exempts by certification or approval; FIRPTA adds buyer-residence and tax-liability relief

Form N-289 is a certification: the seller signs it under penalty, and the buyer may rely on it unless the buyer knows it is false. Form N-288B is an application, and the Department wants documents, not estimates: the purchase closing statement, a tentative escrow statement, improvement receipts and the depreciation schedule. A condominium that was ever rented carries depreciation “allowed or allowable,” which reduces its basis even if the owner never claimed it.

TIR 2017-01 lists what Hawaii does not offer: no reduction to a seller’s “maximum tax liability,” no treaty rate reduction, and no pause in payment while a waiver request is pending. A seller with a modest gain cannot shrink the 7.25 percent in advance and recovers the excess afterward.

FIRPTA reaches only foreign persons

Under FIRPTA a foreign person is a nonresident alien individual (not a U.S. citizen or national, and not passing the green card or substantial presence test) or a foreign corporation, partnership, trust or estate. A resident alien is not a foreign person. A U.S. seller signs a certification of non-foreign status or gives a Form W-9, and FIRPTA ends there. HARPTA still applies.

The IRS buyer-residence rules turn on the buyer. When an individual buyer will live in the property, withholding is zero at an amount realized of $300,000 or less and 10 percent at $1,000,000 or less. The buyer must plan to live there at least half the days it is used in each of the first two 12-month periods, counting days a spouse, sibling, ancestor or lineal descendant lives there. Form 8288-B asks the IRS to cut withholding to the seller’s maximum tax liability, or to recognize an exemption, and the IRS says it normally acts within 90 days of a complete application.

Timing decides whether an exemption reaches the closing table

Form N-288B is due no later than 10 working days before the transfer date; a form mailed on time counts as filed on time. Late forms are returned, and the statute says filing does not relieve the buyer of the duty to withhold, so an approval that has not arrived by closing means the 7.25 percent is withheld. It goes by mail or hand delivery, never fax, to the district office where the closing takes place or the property is located; for Maui property, the Maui District Office at 54 South High Street, Wailuku. Neither Tax Facts 2010-1 nor the forms state a processing time.

The federal clock differs. If a Form 8288-B is pending at closing, the buyer withholds the 15 percent but holds it until 20 days after the IRS mails its decision. A foreign seller without a Social Security number needs an ITIN, which, absent another valid reason, the IRS will not issue before a binding sale contract exists; it says a Form W-7 filed with Form 8288-B is processed within 10 days of receipt.

Refunds come through the Hawaii return or Form N-288C

The Hawaii return for the year of sale credits the withholding against the actual tax and refunds the excess. Before that return is available, Form N-288C asks for a tentative refund: file it only after DOTAX confirms it received the payment, with a valid taxpayer ID and before the return’s due date, then file the return anyway. A refund claim is due within three years of filing the return or of its due date, or two years from payment, whichever is later (HRS 235-111). Form N-288C figures the refund on the gain, not the price, using the rate schedules printed in its instructions. Federally, the foreign seller attaches the IRS-stamped Copy B of Form 8288-A to Form 1040-NR or 1120-F; no stamped copy is issued without a taxpayer ID.

When both laws apply, the withholdings stack

A hypothetical $3,000,000 sale under each law

Hypothetical, with round numbers and official rates only: a Wailea condominium sells for $3,000,000, and only the seller’s own status changes the result.

• A Hawaii resident with Form N-289 and a non-foreign certification: nothing withheld.
• A U.S. person living on the mainland: HARPTA $217,500 (7.25 percent); FIRPTA nothing. Total withheld: $217,500.
• A foreign person who is not a Hawaii resident: HARPTA $217,500 plus FIRPTA $450,000 (15 percent). Total withheld: $667,500, or 22.25 percent of the price. The buyer-residence reductions stop at $1,000,000.

What comes back depends on the gain. Suppose the mainland seller files as a single individual and has a long-term gain of $800,000 after purchase price, improvements and selling expenses (hypothetical). Form N-288C applies its printed schedule to the gain alone: $2,539 plus 7.25 percent of the gain over $48,000, a tentative tax of $57,059, so the tentative refund is $217,500 minus $57,059, or $160,441. The seller’s Hawaii return for the year sets the final figure.

An LLC, trust or estate is tested on its own residency, unless the law looks through it

Owning Maui property through an entity does not end withholding by itself. What decides it is how HRS 235-68 classifies the owner on the deed.

• Single-member LLC not taxed as a corporation: disregarded, so the member’s residency decides. FIRPTA also treats the owner of a disregarded entity as the seller.
• Multi-member LLC, partnership or corporation: a resident if formed in Hawaii or registered to do business here; TIR 2017-01 says the entity’s residency, not its members’, decides. The entity and its members still file Hawaii returns.
• Trust: a resident if the trustee is a Hawaii resident or the trust is administered in Hawaii. The forms report a revocable living trust under the individual’s Social Security number. Under FIRPTA, a grantor trust with a foreign grantor is withheld on that grantor’s share.
• Estate: a resident only if the decedent was a Hawaii resident, a Hawaii court appointed its fiduciary, and it is administered in Hawaii.
• Co-owners: the amount realized is split by capital contribution, spouses 50 percent each, and only nonresident shares are withheld on. FIRPTA allocates the same way.

Moving property into an LLC or trust can itself be a disposition: the Department’s definition lists transfers and capital contributions among the transactions that may qualify, so retitling shortly before a sale is a question for a Hawaii attorney and CPA, not a withholding workaround.

A 1031 exchange removes HARPTA withholding only when no gain is recognized

The Department calls the 1031 exchange the most common nonrecognition provision in real estate, and the replacement property does not have to be in Hawaii. The seller certifies the exchange on Form N-289, box 2. If the seller receives cash, property that is not like-kind, or relief from debt, some gain may be recognized; if any gain is recognized, Form N-289 cannot be used, and the full 7.25 percent of the amount realized is withheld.

Under the IRS instructions for Form 8824, an exchange covers only real property held for business or investment, not property held primarily for sale. Replacement property must be identified within 45 days and received within 180 days or by the return’s due date with extensions, whichever is earlier, and U.S. and foreign real property are not like-kind. If the timing is missed because of the qualified intermediary, the IRS says any gain may be taxable in the year of transfer. DOTAX describes no separate procedure for an exchange that fails after Form N-289 was given: any gain recognized is reported on the Hawaii return with no withholding credit against it. For a foreign seller, a deferred exchange still open when Form 8288 is due needs an IRS withholding certificate. Bring in a qualified intermediary and a CPA before listing.

Prepare before you list, file as soon as escrow opens

1. Confirm how title is held and each owner’s residency as of the expected closing date.
2. Gather the purchase closing statement, improvement receipts and any depreciation schedule.
3. Choose the route: Form N-289, Form N-288B, or withholding now and a refund later.
4. Foreign sellers: plan Form 8288-B and file Form W-7 as soon as the contract is binding.
5. Check the net: both withholdings come out of the seller’s proceeds at closing, along with the mortgage payoff.

Maui County’s annual real property tax is a separate County tax, covered in our guide to Maui property tax for second homes. If the property was a vacation rental, our guide to Maui vacation rental rules covers what a buyer can continue.

Frequently asked questions