— Updated 1.13.2020. Here are two tips how to lower your Honolulu property tax:
1.) How to lower your Honolulu property tax – Dedicate your condotel for residential use.
You might own a Honolulu condo in a building that is zoned for hotel use and allows short term vacation rentals. We call them ‘condotels’ because the condo could also function as a hotel room. That is if the building allows short term rental terms of less than 30 days. Some of Honolulu’s most popular condotels include the Ilikai, Trump Tower, Ritz Carlton, Waikiki Shore and more.
When you compare Honolulu condo listings you might wonder why some ‘condotel’ listings have higher property taxes than others.
That is because the City of Honolulu charges hotel zoned buildings at the higher hotel & resort property tax rate. That tax rate is currently $13.90 / per $1K assessed value (as of 7.1.2019), versus the residential tax rate at $3.50 / per $1K assessed value.
Let’s say your condotel is assessed at $900K. At the hotel & resort tax rate of $13.90 / per $1K assessed value you would be paying $12,510 per year in property tax.
Now here is the trick: You might be able to reduce your property tax to just $3.50 / $1K assessed value. At $900K assessed value the new property tax bill would be only $3,150 per year. That translates into $9,360 in annual savings over paying the higher tax rate. Keep in mind you would enjoy these savings every year. Sounds appealing?
However, you are only entitled to the lower property tax rate if you dedicate your condo for residential use and the condo is not being rented on a short term basis for less than 30 days per tenant for the next 5 years.
You will need to file the form: “Petition To Dedicate Property For Residential Use ”
1.) The new dedication will be reflected on your October 1st assessment notice and remains valid for 5 years.
2.) The new dedication automatically renews for the next 5 years, unless:
If you cancel the dedication in writing by September 1st in the 5th year, the dedication will not be renewed.
If the property sells, the dedication continues until the completion of the most recent 5-year dedication period and automatically cancels at that time.
However, the new owner may apply by September 1st in the 5th year for the City’s approval to continue the dedication.
3.) You give up the right to ‘change the use’ for at least 5 years.
4.) If you violate the use restriction, the dedication is cancelled retroactive including the full tax year prior to the violation. You will be charged back taxes including the full fiscal year prior to the violation, equal to the difference in tax rate, plus a 10% penalty.
5.) This ‘Residential Use Dedication’ replaces the previously used ‘Declaration Regarding Condominium Use’, now considered invalid.
6.) A Home Exemption will no longer automatically qualify a property for a classification as Residential.
See related article New Rules And Filing Deadline To Dedicate Your Condotel For Residential Use
2.) How to lower your Honolulu property tax – Adding an owner occupant relative on title.
For Honolulu County, the island of Oahu property tax rates are as follows:
- Residential rate is $3.50 / $1K assessed value.
- Residential rate ‘A’ is a two tier rate:
- $4.50 / $1K assessed value for properties assessed up to $1,000,000
- $10.50 / $1K assessed value above $1,000,000
- Hotel & Resort (condotels) $13.90 / $1K assessed value.
See related article: Guide To Honolulu Property Taxes
A client of mine bought a home a couple years ago for their young 18-year old son to occupy while attending University Hawaii. The owners / parents do not occupy the property as their principal residence, in fact they live mostly overseas and only come to visit on occasion.
Because the tax assessed value for the property is above $1Mill and the property is not used by the owners as their principal residence, the property tax rate Residential ‘A’ applies at $4.50 / $1K assessed value up to $1Mill assessed value, and $10.50 / $1K assessed value above $1Mill, versus the regular residential tax rate $3.50 / $1K assessed value.
So the owners decided to add their 18-year son on title as ‘tenant in common’ designating as little as only 1% of ownership interest to their son. The son is living full time in the home and he is a legal resident in Hawaii.
It is a simple process to get this done as long as there is no mortgage involved. An escrow company orders a new deed with the owner occupant relative added for all owners to sign in front of a notary. Escrow records the new deed at the bureau of conveyances. The total one-time cost was $345.
The 18-year is now on title to the degree of >1% ownership interest. He is living in the property as his principal residence and now files the standard $100K home exemption form.
The home assessed at $1.5Mill with the two tier Residential rate ‘A’ used to have a $9,750 property tax bill per year. That tax rate will now drop to the regular residential rate ($3.5 / $1K) and the new tax bill will be $5,250 per year. The $100K home exemption will generate an additional $350/y in tax savings.
In this scenario the total one-time cost was $345, generating tax savings of $4,850 per year and every year after that.
Always check with your favorite qualified tax professional before making tax decisions.
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