Yes, absolutely! You can buy a house in Hawaii even if you live in California. There are no restrictions based on your state of residence (or even country of origin) when it comes to purchasing property in Hawaii.
Understanding Property Ownership for Non-Hawaii Residents
Anyone, regardless of where they reside, is eligible to purchase real estate in Hawaii. This means that living in California does not prevent you from buying a vacation home, investment property, or future retirement home on any of the Hawaiian islands.
However, it's crucial for non-Hawaii residents to be aware of a specific tax consideration that applies when they decide to sell the property in the future: the Hawaii Real Property Tax Law, commonly known as HARPTA.
Important Tax Considerations for Non-Residents: HARPTA
While buying property is straightforward, selling it as a non-resident of Hawaii involves a withholding tax under HARPTA. This law requires a portion of the sale proceeds to be withheld and sent to the Hawaii Department of Taxation to ensure that non-resident sellers pay their state income tax on the gain from the sale of the property.
| Aspect | Details |
|---|---|
| What is HARPTA? | HARPTA stands for Hawaii Real Property Tax Law. It is a state law that requires buyers to withhold a percentage of the gross sales price from a non-resident seller and remit it to the Department of Taxation. |
| Applicability | Applies to non-Hawaii residents who sell real property in Hawaii. If you live in California and sell your Hawaii home, you will be subject to HARPTA. |
| Withholding Rate | The current withholding rate is 7.25% of the sale price. This amount is withheld at closing. |
| When it Applies | This tax is withheld when and if you sell the property. It does not apply at the time of purchase. |
| Purpose | It acts as an estimated income tax payment on the gain from the sale. Non-resident sellers can apply for a refund if the actual tax liability is less than the withheld amount, or they may owe more if the tax due exceeds the withheld amount. |
| Exemptions/Waivers | Certain exemptions or waivers may apply, such as if the seller certifies they are a Hawaii resident, the property's sales price is under a certain threshold, or the seller qualifies for an exemption based on their adjusted basis in the property. However, it's generally applicable to out-of-state sellers. |
Understanding HARPTA is crucial for anyone buying property in Hawaii as a non-resident, as it impacts the net proceeds you receive if you eventually sell the property.
Why HARPTA Matters for California Buyers
As a resident of California, if you buy a house in Hawaii and then decide to sell it down the line, a significant portion (7.25%) of the gross sale price will be withheld and sent to the State of Hawaii. This is not necessarily an additional tax but a prepayment of your Hawaii state income tax liability on any capital gains from the sale. You will need to file a Hawaii tax return to reconcile the actual tax due.
Key Steps for Out-of-State Buyers
Purchasing property remotely, or from out-of-state, requires careful planning and reliance on local experts. Here are some practical steps:
- Engage a Local Real Estate Agent: Work with an experienced real estate agent who specializes in the Hawaiian market. They can provide virtual tours, local insights, and guide you through the unique aspects of Hawaiian real estate.
- Secure Financing Early: Get pre-approved for a mortgage. Lenders are accustomed to out-of-state buyers, but having your finances in order strengthens your offer.
- Understand Property Management: If it's a second home or investment, consider whether you'll need a local property manager for maintenance, rentals, or emergencies.
- Factor in Additional Costs: Beyond the purchase price, consider property taxes, insurance (including hurricane and flood insurance), and potential homeowner association (HOA) fees, which can differ from California.
- Remote Closing Process: Many aspects of closing can be handled remotely through power of attorney or electronic signatures, making the process feasible without needing to travel to Hawaii.
In conclusion, your California residency poses no barrier to buying a house in the beautiful state of Hawaii. Just be mindful of the tax implications for non-residents when it comes time to sell.
