Any insight on the HARPTA tax law

[John Harrington]

My Ex-Wife and I are finally selling our apartment which we bought when I was stationed in Hawaii.  She has been living in that apartment for over 8 years now, but since then I have moved back home to MD.  I have recently been told that because I am an out of state seller we will be hit with a 5% of the sales total HARPTA tax (which isn't actually a tax but a law).  

I had thought since she had lived there over 2 years of the past 5 years we would not be hit with the Capital Gains tax. 

I'm having her talk to a CPA/Tax professional in Hawaii Monday to see what our options are.

Thanks ahead for any insight.  

[Ashish Acharya]

@John Harrington , 

That 5% is just a withholding rather than a tax. You will get it back if you dont owe it when you file a tax return. 

Is it an actual apartment or an SFH? Is part of this rented? If it is an apartment and rented, there might be some recognition of capital gain under section 121.

Also, there are exceptions to the withholding if: 

1 the house is the primary residence of the seller and profit is less than 300k. If this is her Primary residence, she qualifies for this 

or 

2) Seller is resident, which your ex-wife is. If she owns the house, she qualifies for this. 

or

3) if the sale qualifies for section 121 that you mentioned above, which you say she does. 

She qualifies for all the exceptions, might not be subject to the withholding.