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New Rules And Filing Deadline To Dedicate Your Condotel For Residential Use

New Rules – Dedicating Your Condotel For Residential Use

– A number of Honolulu condos are located on land that is zoned for hotel/resort use. We refer to these condos as ‘condo hotels’ or ‘condotels’ because they could be used for both, ‘residential’, or ‘hotel/resort’ use.

‘Residential use’ means the property serves as your principal residence, your 2nd home / vacation home, or as a long-term rental with rental terms of 30-consecutive days or more per tenant.

‘Hotel/resort use’ means the property rents as a short-term rental with rental terms shorter than 30-consecutive days per tenant. Short-term vacation renting could potentially generate higher rental income compared to long-term renting. It might also provide greater flexibility for personal use between guest bookings.

Honolulu City Council recently adopted Ordinance 17-013 where condos that are permitted for both ‘residential’ use and ‘hotel/resort’ use will automatically be taxed at the higher hotel/resort property tax rate of 1.39% of assessed value, instead of the lower residential tax rate of 0.35% of assessed value.

Also see related article: Honolulu County Property Tax Rates

However, you could have the higher resort/hotel property tax rate reduced to the lower residential rate by filing the ‘Petition To Dedicate Certain Property For Residential Use (5 Year Dedication)’

But reducing your property tax rate by ‘dedicating for residential use’ comes at a price: You give up your right of renting your property as a short-term vacation rental.


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, then 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.


Final Thoughts: 

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 current. That’s why we write this blog!  Sign up for updates  😉  

— Here is a copy of the City letter mailed to about 8,000 Honolulu property owners on 7/7/2017:

City Letter p1 - Sept 1st filing deadline to dedicate for residential useCity Letter p2 - Sept 1st filing deadline to dedicate for residential use


Condo Projects impacted by new rule

Condo Projects impacted by new rule


Other news from the Honolulu Real Property Tax Division here:  https://www.realpropertyhonolulu.com/whats-new/

For all legal matters, always check with your favorite qualified professional legal counsel.


Let us know your thoughts. We love to hear from you. Reciprocate Aloha!  ‘Like’, ‘Share’, and ‘Comment’ below.

~ Mahalo & Aloha

New Rules And Filing Deadline To Dedicate Your Condotel For Residential Use was last modified: September 11th, 2021 by George Krischke
George Krischke
Principal Broker (R) Hawaii Living See my other articles

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11 Responses to "New Rules And Filing Deadline To Dedicate Your Condotel For Residential Use"

  • Lisa Rivaldo-Dillon
    August 10, 2019 - 10:08 pm Reply

    ‘Residential use’ means the property could serve as your principal residence, or as a long-term rental with rental terms of 30-consecutive days or more per tenant.
    —————————
    I guess what I need clarification on is:
    According to above information I would be in a lower residential tax rate of 0.35% of assessed value if I am NOT in the hotel/condo catagory. That’s great but do I disqualify if I use my rental property for MORE than 14 days as equivalant to the condo/Hotel short term rental? I want to rent 9 months then use my personal property during the summer. Thanks again for the clarification. Sorry to be a bother.
    Lisa Rivaldo-Dillon

    • George Krischke, Principal Broker, Hawaii Living LLC
      August 11, 2019 - 2:08 am Reply

      Aloha Lisa Rivaldo-Dillon!
      Thank you for your excellent question. “I want to rent 9 months then use my personal property during the summer.” – That’s perfectly fine. We have many clients that ‘reside’ and ‘rent’ part of the year.
      There is NO minimum requirement for personal use with the residential dedication. The only minimum requirement applies to ’30-consecutive days or more per tenant’ if you do rent.
      — However, you should be aware that your federal tax benefits will change if you split personal use with investment use. That is if your personal use exceeds 14 days, or 10% of the number of days rented at fair market rent, whichever is greater. ‘Personal use property’ deductions get itemized on Schedule A and ‘investment property’ gets reported on Schedule E. You will then need to proportionately allocate the mortgage interest and property taxes between ‘personal use’ on Schedule A and ‘rental use’ on Schedule E.
      For any ‘personal use’ days, none of the rental expenses can be deducted. Any remaining rental expenses may be used to offset the rental income but can no longer generate a loss on Schedule E.
      Splitting your property expenses on both Schedule A and Schedule E could increase your chances for an IRS audit. Maintain immaculate records!
      See our article: https://www.hawaiiliving.com/…/personal-use-hawaii…/
      — We don’t just write about this stuff. We are expert realtors.
      Contact us today and we will find the right property that fits your needs. We are here to help.
      ~ Mahalo & Aloha

    • Lisa Rivaldo-Dillon
      August 14, 2019 - 7:08 am Reply

      George Krischke, Principal Broker, Hawaii Living LLC

    • Lisa Rivaldo-Dillon
      August 14, 2019 - 7:08 am Reply

      THANK YOU SO MUCH!!!!!!

    • George Krischke, Principal Broker, Hawaii Living LLC
      August 15, 2019 - 11:08 pm Reply

      Lisa Rivaldo-Dillon, you are welcome.
      Your questions are excellent! We have helped many clients with similar questions. We are here to help, ready when you are. To get started contact us here: https://www.hawaiiliving.com/contact/
      ~ Mahalo & Aloha

  • Lisa Rivaldo-Dillon
    August 10, 2019 - 7:08 am Reply

    Hello,
    What if I want to buy a condo NOT in the condo/hotel venue and rent it for lets say 9-10 months during the year and use the rest of the time for my personal use? I can’t seem to find anything that gives clear guidelines. I don’t want the property as my main place of residence as I live on the mainland. Help?
    thank you,
    Lisa Rivaldo-Dillon

    • George Krischke, Principal Broker, Hawaii Living LLC
      August 11, 2019 - 1:08 am Reply

      Aloha Lisa Rivaldo-Dillon!
      See my detailed response to your 8.11.2019 question. Contact us directly and we will make it happen. We are here to help.
      ~ Mahalo & Aloha

  • Rob Randel
    July 10, 2017 - 5:07 pm Reply

    Hello George, thank you for posting this information. My understanding is that if you dedicate as residential and during the 5-yr period you decide to move the unit into vacation rental, you can do it but the “cost” is one year of back tax at the higher rate (less what you already paid at residential rate) plus a 10% surcharge on those taxes. Am I understanding correctly?

    • George Krischke, Principal Broker, Hawaii Living LLC
      July 11, 2017 - 8:07 pm Reply

      Aloha Rob Randel, thanks for checking in. The “cost” of breaking the 5-year dedication includes the full prior fiscal year of back taxes plus 10% penalty. The timing makes a difference in the total “cost”. Example: You own a $1Mill condotel used as a long-term rental (>30-day rental terms) with a 5-year residential dedication. On January 1st, 2020 you start short-term vacation renting the unit. The “cost’ in back taxes and penalty would be: $11,440 for fiscal 2018 ($13,900 – $3,500 = $10,400 + 10% = $11,440), plus $5,720 for half of fiscal 2019 (13,900 – $3,500 = 10,400 : 2 = $5,200 + 10% = $5,720). Total “cost” for 12 + 6 months back taxes plus penalty: $17,160 ! Small numbers add up over time. ~ Mahalo & Aloha

    • Rob Randel
      July 12, 2017 - 12:07 am Reply

      George Krischke, Principal Broker, Honolulu HI 5, LLC Thank you for that example George. It helps illustrate the impact more clearly. I had not been considering the timing portion of the change in use status in determining the total cost/impact. Very good to know and thank you for the explanation.

    • George Krischke, Principal Broker, Hawaii Living LLC
      July 13, 2017 - 9:07 am Reply

      Glad we can help. � ~Mahalo and Aloha