When a condo on Oahu is classified as Hotel Resort the owner is allowed to run short-term rentals (rentals less than 30 days), subject to the condo House Rules not stating otherwise, and the property tax rate will be 1.39% of the condo’s total assessed value.
When a condo is classified as either Residential or Residential A – the two residential tax rates we have on Oahu – the property tax rate runs from 0.35% to 1.05% of total assessed value depending on certain factors – in either case, lower than the Hotel Resort tax rate. For more details on Honolulu’s property tax rates, please see our Guide to Honolulu Property Taxes.
As a result, if an owner of a condo classified as Hotel Resort does not run short-term rentals, it may make sense for the owner to reclassify the unit to a Residential status to save on property taxes.
Below we review how to reclassify a property, the renewal process, and possible penalties.
Reclassifying From Hotel Resort to Residential
Fill out and mail the Petition to Dedicate for Residential Use to the Real Property Assessment Division and make sure they receive the letter by September 1st of a given year or, if you mail out late August or even on September 1st, have the letter postmarked by September 1st and, if granted, the residential tax rate would take effect on July 1st of the following year. If you mail the Petition after September 1st you have to wait an additional year to have your condo reclassified to residential.
Example 1: Mail the Petition August 30, 2019 (have it postmarked, since it is close to the September 1st deadline) and the residential tax rate should take effect July 1, 2020 (10 months later).
Example 2: Mail the Petition September 5, 2019 and the residential tax rate should take effect July 1, 2021 (22 months later).
Renewal of Residential Status
If you, the owner, filed the Petition to Dedicate for Residential Use, then the dedication will automatically renew every 5 years indefinitely – no future action needed! However, if you purchased a unit that was already listed as Dedicated for Residential Use by the previous owner, then you, the new owner, will need to reapply for the Petition to Dedicate for Residential Use prior to September 1st in the 5th year – counting from the time the residential status was granted to a prior owner.
Example: Previous owner applied for the Dedication for Residential Use on August 7, 2017 and was granted residential use status July 1, 2018. You became the new owner in November 2019 and in the 5th fiscal year since the dedication was granted (5th year starts July 1, 2022) you need to fill out and mail in the Petition to Dedicate for Residential Use, however, it must be filled out and submitted prior to September 1, 2022 and the Petition will remain in place for as long as you are the condo owner.
If the Petition is submitted after September 1, 2024 the property will be reclassified to Hotel Resort from the beginning of the following fiscal year – July 1, 2025 – and you will have to reapply for the Petition to Dedicate for Residential Use prior to September 1, 2025 in order to be reclassified – again – to residential by July 1st, 2026.
Reclassifying From Residential to Hotel Resort
If a property is currently classified as Residential because you or a prior owner filed the Petition to Dedicate for Residential Use and you want to reclassify to Hotel Resort because you want to run a short-term rental business (less than 30 days per tenant), then you have to send a letter to Honolulu’s Real Property Assessment Division and explain you wish to opt out of the Dedication for Residential Use and that your property be reclassified to Hotel Resort.
Make sure such letter includes the full address of the property, its TMK number and the address you wish the Real Property Assessment Division to mail their response to. The response letter you may receive from the Real Property Assessment Division should outline penalties due. (See explanation below.)
Where to Mail the Letter
First, call Honolulu’s Real Property Assessment Division (808) 768-3799 and ask for the name of the appraiser for your specific unit (have the TMK number ready), so you can address the letter directly to the appraiser who will review your letter. Then mail the letter to:
Real Property Assessment Division
ATTN: NAME OF APPRAISER
842 Bethel St.
Honolulu, HI 96813 USA.
You can mail the letter anytime during the year – there is no deadline.
Penalty Reclassifying From Residential to Hotel Resort
If you purchase a property, which has been dedicated to residential use you are ‘stuck’ with that dedication for 5 years, counting from the date the previous owner was granted the dedication. However, by paying a penalty, you can cancel the residential dedication and get reclassified to Hotel Resort.
Penalty Calculation
Previous Fiscal Year’s Theoretical Hotel Resort Tax (A) minus Previous Fiscal Year’s Actual Paid Tax (B) = C.
C x 10% (penalty) = D.
C + D = E.
Current Fiscal Year’s Theoretical Hotel Resort Tax (F) minus Current Fiscal Year’s Actual Tax (G) = H.
H x 10% (penalty) = I.
H + I = J.
E + J = $ X (Penalties Due).
Note: If the property was not classified as residential in the previous fiscal year, but only took effect in the current fiscal year, then the total penalty due will only be determined from the current fiscal year’s calculation (H + I = $ J).
Example
You become owner of a condo September 12, 2019, which has been dedicated to residential use since July 1, 2017 and you wish to reclassify the condo to Hotel Resort and determine your penalties.
Fiscal 2018 Total Assessed Value = $800,000.
Fiscal 2018 Property Taxes Paid = $2,800 (A)
Fiscal 2018 Property Taxes IF Hotel Resort = $10,320 (B)
Difference Between B and A = $7,520 (C)
C x 10% = $752 (D)
C + D = $8,272 (E)
Fiscal 2019 Total Assessed Value = $835,000.
Fiscal 2019 Property Taxes Paid or Due = $2,922 (F)
Fiscal 2019 Property Taxes IF Hotel Resort = $11,606 (G)
Difference Between G and F = $8,684 (H)
H x 10% = $868 (I)
H + I = $9,552 (J)
Total Penalties Due (E + J) = $17,824.
NOTE: If you wish to reclassify to Hotel Resort and can wait until 5 years is up since the residential dedication was granted then you can avoid penalties:
A) If you are the owner who was originally granted the petition for residential use, you simply need to write a letter to the Real Property Assessment Division, prior to the 5 year expiration mark, stating you wish to start running short-term rentals when the 5 year Dedication to Residential Use is up and have your property reclassified.
B) If a prior owner was granted the residential status, which you since purchased, then after year 5 (since the date the prior owner was granted the residential status) the Dedication for Residential Use will automatically expire and the property will revert back to Hotel Resort status – no action needed!
Hope this post brought some clarity on the property reclassification topic. We welcome any thoughts, questions or comments below.
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