Hawaii Real Property Taxes are the Lowest in the Country
It’s not a surprise to people that Honolulu home prices are high. It’s a well-known fact that living in paradise comes at a cost. What does surprise some people, however, is the relatively low property tax rate. In fact, Hawaii property tax rates are the lowest in the country! Real property tax rates in Hawaii vary from island to island and rates also vary depending on what type of property you own. In Honolulu, as an owner-occupant who has filed a home exemption, property tax is assessed at $3.50 per $1,000.00 of assessed net value. For non-owner-occupied properties, the rate jumps to $4.50 per $1,000.00 for assessed values up to $1,000,000 and $9.00 per $1,000.00 for values over $1,000,000. As an owner-occupant, residents receive an exemption ($80,000), thus lowering the taxable value of their primary residence. The home exemption goes up to $120,000 for homeowners 65 years or older on or before June 30th. People with disabilities can also receive a special exemption. The deadline to file the Claim for Home Exemption is on or before September 30th preceding the tax year for which such exemption is filed. Here is the link to the Claim for Home Exemption form and instructions: https://www.realpropertyhonolulu.com/media/1506/bfsrpp3v2.pdf
Though property taxes are relatively low, property owners also pay a tax upon conveyance, meaning the transfer of their property to another owner. This tax is based on the actual and full consideration paid for the property. Rates are scaled according to the sales price. For example, properties up to $600,000 are taxed at 10 cents per $100. Properties between $600,000 and $1,000,000 are taxed at 20 cents per $100. As prices increase, so does the rate. Rates are also higher for investment owned properties.
It’s important to know all of the tax ramifications prior to purchasing and selling a property. Considerations include capital gains tax, conveyance tax, property tax, and for out-of-state residents, HARPTA withholding tax. There has been an increase in the HARPTA withholding rate from 5% to 7.25%. The change in rate applies to all real property dispositions that occur on or after September 15, 2018. When a seller (transferor) is an out-of-state resident, the buyer must withhold 7.25% of the amount realized by the transferor on the disposition of the Hawaii property, unless an exemption applies. The amount paid to the Department by the Transferee/buyer is an estimated tax payment made for the benefit of the Transferor/seller, taken out of monies otherwise due to the Transferor/seller. The Transferee/buyer is acting as a withholding agent. There is a similar withholding (FIRPTA) for buyers of foreign-owned property at an even greater rate of 15%. For more information, please contact the Department of Taxation Technical Section at (808) 587-1577 or by email at Tax.Technical.Section@hawaii.gov
Taxes are a significant ingredient in all real estate transactions, so it is extremely important to consult with a CPA or tax attorney for a thorough understanding of tax implications prior to purchasing or selling a property. As Realtors, we are not authorized to provide tax advice, and this brief article is written merely to identify some important considerations. At East Oahu Realty, we do our best to make sure our clients understand the importance of consulting with the appropriate professionals prior to making real estate decisions.