1. Know Your Intentions Going into the Sale
When you decide to sell your home, it’s important to take stock of your intentions—and your outcomes for the sale.
Are you leaving the state, like the 15,000 people who moved away from Hawaii in 2022? If so:
- Do you already have a sense of where you’ll go?
- Is there a home already waiting for you?
- Or will you need storage for your belongings while you transition your new home?
Finding Storage Solutions
Talk to your moving company about potential storage solutions early on. Even if you don’t anticipate a gap between homes, knowing you have storage options to fall back on can set your mind at ease during the home sale process.
Additionally, if you already have a destination in mind, it might make sense to store your items closer to your new home. This can be especially true if you’re moving to the mainland. Storage on the mainland can be much more cost-effective than in Hawaiʻi, so you may want to have your items shipped ahead.
By talking to your movers early on, you’ll know exactly what’s available so you can plan accordingly.
Maybe you’re you staying local—and simply looking for a different type of housing within Hawaiʻi?
- Do you need more room for a growing family?
- Are you downsizing to a property that’s more suited to your current lifestyle?
- Are you open to an interisland move? Or will you stay on the same island?
Answering these questions will help focus your home search from the start.
If you’re considering buying a new home in Hawai’i right away, make sure to talk with your real estate agent about how to make a smooth transition. Things like contingency clauses and/or careful scheduling of your closing date can mean fewer disruptions to your life.
Tax Implications of Your Hawaiʻi Home Sale
The other thing you’ll want to plan ahead for are the tax considerations that come with selling your home in Hawaiʻi. The state’s hot real estate market has meant significant home value appreciation for many Hawaiʻi homeowners. When you sell, Uncle Sam will want his cut, and so will the Hawaiʻi state government.
It pays to talk to a tax professional early on, while you’re still deciding exactly what tack to take. Good advice—and smart decisions—can mean significant savings.
For example, investors selling their Hawaiʻi properties may be able to defer capital gains with a 1031 exchange.
Those selling their primary residence in Hawaiʻi may qualify to exclude up to $250,000 of your gain—or $500,000, if you file a joint return with your spouse.
In other words, this isn’t the time to be an armchair accountant. Spend the money for a consultation with a pro. Tell them your plans, and ask their advice. It will more than pay off.
What Is the Capital Gains Rate in Hawai
The current maximum state capital gains tax rate in Hawaiʻi is 7.25%, although there’s legislation under consideration to raise it to 11%.
You’ll also be subject to federal capital gains taxes, which tax long-term capital gains at a rate of 0%, 15%, or 20%, depending on your circumstances.
With these kinds of percentages floating around, it’s easy to see why talking to a pro can help you save a significant amount.
What Is HARPTA?
The Hawaii Real Estate Property Tax Act is a mechanism the state of Hawaii uses to ensure that they’re able to collect capital gains taxes from non-residents. (Residents would report their capital and file taxes through their yearly Hawaii income tax filings.) HARPTA requires a collection of a flat 7.25% of the entire home sales price for non-residents.
Ultimately, a seller will only owe 7.25% on the appreciation of the property (the capital gains), not the entire cost. Non-residents can file form N288C after closing to get a refund in the case that the HARPTA withholding exceeds the actual capital gains tax due on the property.
If the seller is a foreign investor and not a U.S. citizen, they may also be subject to a 15% FIRPTA withholding. The Foreign Investment in Real Estate Property Tax Act of 1980 (FIRPTA) allows the federal government to tax capital gains on real property sold by non-citizens. Like HARPTA, the person who is taxed can file a tax return to receive a refund of any taxes paid in excess.
Once you’ve decided to sell—and you have a plan for your next steps—it’s time to figure out the best time to sell so you can maximize your sale price.