Aloha. This is George Krischke with Honolulu HI 5 (company now called Hawaii Living).
In a different segment we talked about vacation renting your property and we talked about residential zoning, rental term restrictions which normally is 30 days minimum per tenant. We talked about house rule rental term restrictions which sometimes is 60 days or 90 days minimum per tenant. Regardless if you rent your property short term or long term, we need to talk about tax obligations that come along with collecting rental income in Hawaii.
1.) On all gross rents received you have to pay 4.5% General Excise Tax (GET). This is on the gross rent received, not on the rent after expenses, minus expenses. It’s on the gross rent received, 4.5% General Excise Tax.
2.) If you rent your property on a shorter term basis and shorter term basis in this case is defined as 180 days or less per tenant, then you’re obligated to pay an additional 10.25% (effective 1.1.2018, previously was 9.25%) Transient Accommodation Tax (TAT)
Those taxes are due either quarterly or monthly depending on how much rental income is generated. There’s a formula for that. Normally they are due on the 20th of the following month after the collection period. So 20 days to send in the taxes.
If these taxes are not received by the 20th, there are hefty penalties and there are late fees and interest that accrues on it. So it’s important to be timely on those payments and it’s important to be accurate on the calculation of those payments. Let me explain.
There is no statue of limitation with general Excise Tax or Transient Accommodation Tax. It means if you ever get audited, the state may require you to open your books going back 3, 5, 7, 10 years, 15 years, whatever it is. So make sure you are accurate with the taxes that are due.
The state has different mechanisms to check also on rental income. For example, did you know that as a renter in the state of Hawaii, you get a $50 tax break, if the renter provides the contact info for the landlord. So if you don’t report it, your tenant might be reporting to the State of Hawaii that he’s paying rent to you, so make sure you pay the appropriate taxes.
There are other requirements we need to talk about. An out of state landlord is required to have a local property manager, a local contact, there always needs to be somebody here in the state available that can assist the tenant in case of an emergency.
There are additional reporting requirements that even involve associations. If you rent out your condo in a high rise condominium building, the association is required to report you as a landlord if the association is aware of it. In fact, nowadays the association could be fined if they don’t report. This is all an effort by the State, it’s all about tax revenue for the State that the State might have been missing.
I stress the importance of this. You have been informed. With all tax matters, always check with your favorite qualified tax professional to get the full details on the latest legislation and how it affects your individual situation.
See related article: GET/TAT – The Easiest Way To File & Pay
That’s it. Until next time, ~Mahalo & Aloha.