– Honolulu City Council recently adopted Ordinance 17-013 to include condominium units in the residential use dedication program. A condominium unit with multiple legally permitted uses will automatically be classified based on the units ‘highest and best use’ (means taxed at the highest of the multiple property tax rates), unless approved for residential use (you can not rent out your unit for shorter than 30-day rental terms), after the owner files by September 1st the following form: Petition To Dedicate Certain Property For Residential Use (5 Year Dedication)
What is unique with the new rule?
If the City approves your petition:
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.
Go figure and be in the know!
How does it affect me?
1.) If you own a Honolulu condotel, e.g. the Ilikai, Ilikai Marina, Waikiki Shore, Luana Waikiki, or Trump Tower Waikiki, etc. and, for the next 5 years (!) you do not plan on renting your unit as a short-term vacation unit for less than 30-days per tenant, than you may apply for the residential dedication and claim the lower property tax rate.
2.) If you use the unit for short term vacation renting while the 5-year residential dedication is in place, 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.
Click here to download the Petition form and file by September 1st.
Click here to read the Ordinance.
It appears the city is trying to reduce work load and increase revenue at the same time. The higher tax rate could be triggered for unassuming owners that have had previously filed a ‘Declaration Regarding Condominium Use’, which will now be void.
A full fiscal year retroactive back taxes could mean 12 to 24 months additional taxes, depending on the timing, plus the penalty adds up to some significant bucks. This could catch some people by surprise.
The burden is on the home owner to keep up to date. That’s why we write this blog! Sign up for updates on the top right 😉
— Here is a copy of the City letter mailed to about 8,000 Honolulu property owners on 7/7/2017:
Other news from the Honolulu Real Property Tax Division here: https://www.realpropertyhonolulu.com/whats-new/
Always check with your favorite qualified professional legal council before making big decisions.
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~ Mahalo & Aloha