How To Lower Your Honolulu Property Tax

Here are two tips how to lower your Honolulu property tax:

1.) How to lower your Honolulu property tax – Declaration Regarding Condominium Use. 

You might own a Honolulu condo in a building that is zoned for hotel use and allows short term vacation rentals. We call them ‘condotels’ because the condo could also function as a hotel room.  That is if the building allows short term rental terms of less than 30 days.  Some of Honolulu’s most popular condotels include the Ilikai, Trump Tower, Ritz Carlton, Waikiki Shore and more.

When you compare Honolulu condo listings you might wonder why some ‘condotel’ listings have higher property taxes than others.

That is because the City of Honolulu charges hotel zoned buildings at the higher hotel & resort property tax rate. That tax rate is currently $12.90 / per $1K assessed value, versus the residential tax rate at $3.50 / per $1K assessed value.

Let’s say your condotel is assessed at $900K.  At the hotel & resort tax rate of $12.90 / per $1K assessed value you would be paying $11,610 per year in property tax.

Now here is the trick:  You might be able to reduce your property tax to just $3.50 / $1K assessed value.  At $900K assessed value the new property tax bill would be only $3,150 per year. That translates into $8,460 in annual savings over paying the higher tax rate.  Keep in mind you would enjoy these savings every year.  Sounds appealing?

However, you are only entitled to the lower property tax rate if the condo is not being rented on a short term basis for less than 30 days per tenant.

If that is the case with your condo, than this is how you lower your tax:  You will need to file the form: “Declaration of Condominium Use”

On the form you will need to declare either:

1. You used the property only for your personal use (as a full time resident or vacation home), or,
2. If the property was rented, you need to show proof (e.g. rental agreements), the condo has been rented only on a long term basis. Rental terms will need to have been at least 30-day minimum per tenant between October 2^nd last year and October 1^st this year.

You will need to file the form by Sept 30^th this year in order to get the lower property tax rate effective for the upcoming fiscal year starting July 1^st next year.

That’s our tip of the day. With tax matters, make sure you always check with your favorite qualified tax professional before making tax decisions.

2.) How to lower your Honolulu property tax –  Adding an owner occupant relative on title.

The Honolulu City Council passed the budget last week. The good news is there is no increase in real property tax rates for fiscal 2016 effective July 1^st 2016.  For Honolulu County, the island of Oahu property tax rates remain as follows:

• Residential rate is $3.50 / $1K assessed value.
• Residential rate ‘A’ is $6.00 / $1K assessed value.
• Hotel & Resort (condotels) $12.90 / $1K assessed value.

A client of mine bought a home a couple years ago for their young 18-year old son to occupy while attending University Hawaii. The owners / parents do not occupy the property as their principal residence, in fact they live mostly overseas and only come to visit on occasion.

Because the tax assessed value for the property is above $1Mill and the property is not used by the owners as their principal residence, the property tax rate Residential ‘A’ applies at $6 / $1K assessed value, versus the regular residential tax rate $3.50 / $1K assessed value.

So the owners decided to add their 18-year son on title as ‘tenant in common’ designating as little as only 1% of ownership interest to their son. The son is living full time in the home and he is a legal resident in Hawaii.

It is a simple process to get this done as long as there is no mortgage involved. An escrow company orders a new deed with the owner occupant relative added for all owners to sign in front of a notary. Escrow records the new deed at the bureau of conveyances.  The total one-time cost was $345.

The 18-year is now on title to the degree of >1% ownership interest. He is living in the property as his principal residence and now files the standard $80K home exemption form.

The home assessed at $1.5Mill with Residential rate ‘A’ ($6 / $1K) used to have a $9,000 property tax bill per year. That tax rate will now drop to the regular residential rate ($3.5 / $1K) and the new tax bill will be $5,250 per year.  The $80K home exemption will generate an additional $280/y in tax savings.

In this scenario the total one-time cost was $345, generating tax savings of $4,030 per year and every year after that.

Always check with your favorite qualified tax professional before making tax decisions.

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Mahalo & Aloha

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