When a condo on Oahu is classified as ‘Hotel Resort’ the owner is allowed to run short-term rentals (rentals less than 30 days), subject to House Rules of the condo not stating otherwise, and the property tax rate will be 1.39% of the condo’s total assessed value.
When a condo is classified as ‘Residential’ or ‘Residential A’ – the two residential tax rates on Oahu that do not allow for short-term renting – the property tax rate runs from 0.35% to 1.14% of the total assessed value, depending on various factors. In either case, both ‘Residential’ and ‘Residential A’ tax rates are lower than the ‘Hotel Resort’ rate and therefore, if an owner of a condo classified as ‘Hotel Resort’ does not run short-term rentals, it may make sense for the owner to reclassify the unit to a Residential status to save on property taxes.
Note: In the following when referring to ‘Residential’ status it includes both properties with a ‘Residential’ and ‘Residential A’ status.
See related article: Guide to Honolulu Property Taxes.
We will review:
1) How to Reclassify a Property (‘Hotel Resort’ to ‘Residential’ and vice versa).
2) Residential Status Renewal Process.
3) Reclassification Penalties.
Note: When referring to ‘Residential’ – in the following – it means both ‘Residential’ and ‘Residential A’.
Reclassifying From ‘Hotel Resort’ to ‘Residential‘
Fill out the Petition to Dedicate for Residential Use and mail it to the Real Property Assessment Division. Make sure they receive the letter by September 1st of a given year or, at least have the letter postmarked by September 1st. If the petition is granted, the residential tax rate would take effect on July 1st of the following year (beginning of the next fiscal year). If you mail the Petition after September 1st, you must wait an additional year to have your condo reclassified as residential.
Example 1: Mail the Petition on August 30, 2024 (have it postmarked since it is close to the September 1st deadline) and the residential tax rate should take effect July 1, 2025 (10 months later).
Example 2: Mail the Petition on September 5, 2024, and the residential tax rate should take effect July 1, 2026 (22 months later).
Note 1: On December 15th of every year the Assessment Division sends out property assessed values, in the mail, to all owners. In such an assessment letter, you can see the tax classification (Hotel Resort or Residential). That serves as notice if the petition has been granted.
Note 2: Successfully claiming a home exemption – for a property classified as ‘Hotel Resort’ where the owner occupies the property as a primary residence – does not automatically get the property reclassified to a Residential status. Filing the Petition to Dedicate for Residential Use is required.
Renewal of Residential Status
The Dedication for Residential Use is good for 5 years and will automatically be renewed for another 5 years. Except, when the property sells, the dedication expires at the end of the current 5-year period. The new owner will need to reapply prior to the next Sept 1st application deadline to keep the dedication.
Note: The assessment division may use the address listed on the dedication for residential use when mailing out letters and not use the owner’s address listed on tax records. As a result, if a previous owner applied for the dedication to residential use, then, if you became the owner, you may not receive the letter, even if public tax records correctly list your preferred mailing address.
Suggestion: In doubt, contact the City’s Assessment Division. Email firstname.lastname@example.org or call the Assessment’s office (808) 768-3799. The city’s requirements and rules can change. E.g. the original 5-year dedication period was not automatically renewed. Instead, it defaulted to the higher tax rate. – Surprise!
Reclassifying From Residential to Hotel Resort
If a property is currently classified as ‘Residential’ because you or a prior owner filed the Petition to Dedicate for Residential Use and you want to reclassify to ‘Hotel Resort’ because you want to run a short-term rental business (less than 30-day rental terms per tenant), then you have to send a letter to Honolulu’s Real Property Assessment Division and explain you wish to opt out of the Dedication for Residential Use and that your property be reclassified to ‘Hotel Resort.’
Make sure such a letter includes the full address of the property, its TMK number, and the address you wish the Real Property Assessment Division to mail their response. The response letter you may receive from the Real Property Assessment Division should outline the penalties due. (See explanation below.)
Where to Mail the Letter
First, call Honolulu’s Real Property Assessment Division (808) 768-3799 and ask for the name of the appraiser for your specific unit (have the TMK number ready), so you can address the letter directly to the appraiser who will review your letter. Then mail the letter to:
Real Property Assessment Division
ATTN: NAME OF APPRAISER
842 Bethel St.
Honolulu, HI 96813 USA.
You can mail the letter anytime during the year – there is no deadline.
Penalty Reclassifying From Residential to Hotel Resort
If you or a previous owner have dedicated a condo for residential use, you are ‘stuck’ with that dedication for 5 years, counting from the date the residential status started. However, by paying a penalty, you can cancel the residential dedication and get reclassified to Hotel Resort, anytime before the 5-year period is up, and start running short-term rentals.
Previous Fiscal Year’s Theoretical Hotel Resort Tax (A) minus Previous Fiscal Year’s Actual Paid Tax (B) = C.
C x 10% (penalty) = D.
C + D = E.
Current Fiscal Year’s Theoretical Hotel Resort Tax (F) minus Current Fiscal Year’s Actual Tax (G) = H.
H x 10% (penalty) = I.
H + I = J.
E + J = $ X (Penalties Due).
In case the property was not classified as residential in the previous fiscal year, but only took effect in the current fiscal year, then the total penalty due will only be determined from the current fiscal year’s calculation (H + I = $ J).
You became the owner of a condo on September 12, 2023, which has been dedicated to residential use since July 1, 2020, and you wish to reclassify the condo to ‘Hotel Resort’ and determine your penalties.
Fiscal 2022 Total Assessed Value = $800,000.
Fiscal 2022 Property Taxes Paid = $2,800 (A)
Fiscal 2022 Property Taxes IF Hotel Resort = $10,320 (B)
Difference Between B and A = $7,520 (C)
C x 10% = $752 (D)
C + D = $8,272 (E)
Fiscal 2023 Total Assessed Value = $835,000.
Fiscal 2023 Property Taxes Paid or Due = $2,922 (F)
Fiscal 2023 Property Taxes IF Hotel Resort = $11,606 (G)
Difference Between G and F = $8,684 (H)
H x 10% = $868 (I)
H + I = $9,552 (J)
Total Penalties Due (E + J) = $17,824.
In case an owner applied for the Dedication to Residential Use prior to Sept 1st and was granted Residential Status on Oct 1st, but sold the property prior to July 1st of the following year (July 1st being the date the Residential tax rate will start) and the new owner contacts the Real Property Assessment Division prior to July 1st it is not 100% clear if the new owner will face any penalties. In speaking with the assessment office, it sounded like there would not be a penalty, but we were unable to get a clear answer. Could it be they do not have clear guidelines/rules in place?
We hope this post brought some clarity on the property reclassification topic. We welcome any thoughts, questions, or comments below.
Disclaimer: The information is deemed reliable, but not guaranteed, and should not be relied upon in deciding to purchase, sell and/or reclassify a property. Always verify any and all information before making a decision. Rules, regulations, tax rates, tax laws, zoning laws, condo governing documents, etc. are subject to change.