Hawaii is a gorgeous place and often sees sunshine and beautiful views. However, as the property manager or landlord, you must understand how property taxes work.
Whether you own a condo or a house, and depending on where it's located, you'll have to ensure you know what you're doing.
When do you pay the tax, and how is the amount calculated?
Can you lower your bill to maximize your investment?
These questions are on the minds of everyone, and this guide will help you understand property tax rates, exemptions, calculations, relevant laws, and much more.
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Understanding Different Property Tax Bills in Hawaii
All county governments are responsible for collecting and administering property taxes, and they all use a similar system. There's only one type of property tax bill you'll get.
The property tax rates are based on your home's assessed value. Therefore, county officials will appraise each house in that county. For newly remodeled or newly built homes, this will require a visit to the property. However, other properties receive a mass appraisal.
A mass appraisal uses data about the home type, neighborhood, and other factors to help value all homes at once. This happens every year, and property owners will get annual assessment notices that list the assessed value. It's possible to appeal that decision with the local tax board if you disagree.
Once the real property assessment division of the Department of Revenue calculates the assessed value, it will subtract any applicable exemptions before applying the property tax rate. The homeowner exemption is one of the most common options, but it's only available for owner-occupied properties. Overall, it must be your primary residence, so it won't work for a landlord or vacation home.
Typically, Honolulu County sees a home exemption of $100,000. Therefore, if the assessed value is $400,000 and you can get the exemption, you'll be taxed only on $300,000.
How Often Do You Pay Property Tax Each Year in Hawaii?
Property owners will pay property taxes two times per year. The total bill is cut in half, and you'll pay the first half on August 20th. The second half will be paid on February 20 of the following year.
Consequences of Late Payments
If you do not pay property taxes on the due date, you could be charged penalties of 5% each month, up to the maximum of 25%. Therefore, if your property tax payment is over five months late, the overdue amount is then a lien on your house. Once that's been in place for three years, your county tax collector can sell it at a public auction. It's called a foreclosure without suit.
Along with penalties, you'll also be charged an interest rate of one percent for every month you have delinquent taxes.
How to Pay a Property Tax Bill in Hawaii
When paying Hawaii property taxes, you have to know where to send the money. You can pay it at your real property tax payment site, but it's also possible to pay it in person or mail the payment, making the money order payable to that county's Department of Revenue or Division of Treasury.
Some counties also allow you to pay by phone, such as Oahu. You'd call 1-877-309-9117 and follow the prompts.
How Much Are Property Tax Rates in Hawaii?
Counties have property tax rates per $1,000 of taxable value. The residential rate for Honolulu County is at 3.5. You divide that by $1,000 to get a tax rate of 0.035.
Exemptions can vary by county, so you should compare effective tax rates. This tax rate is the median annual tax that's paid in the county and is the percentage of your median home value.
Here is a list of the real property tax rates you will pay based on the county in which the home sits:
- Maui County - 0.21%
- Kauai County - 0.28%
- Honolulu County - 0.35%
- Hawaii County - 0.39%
It's important to understand what county you're in. As you can see, those in Maui County pay much less than those in Hawaii County and Honolulu County. However, it's not that much more than those in Kauai County.
How Is Property Tax Calculated in Hawaii?
Hawaii property taxes are calculated using three steps. The County Council will determine the assessed value of your property, which is based on its fair market value. It will also apply the applicable tax rates and consider your deductions or exemption claims.
You can find out the assessed value by determining the fair market value. Generally, the County Council will tell you what this amount is.
You will then multiply the assessed value by the tax rate to see the property taxes due. However, if you have any exemption claims, you would deduct them from the property's assessed value before calculating your tax liability.
Filing exemption claims can be challenging, and landlords cannot do this because it's only available to property owners who pay real property tax. Let's say you have a property assessment of about $1 million. The tax rate in your area is $1.90 per $1,000 in assessed value. You'd take $1 million and divide that by 1,000 to get 1,000. Then, you'd multiply by 1.90 to get a tax liability of $1,900.
However, you also have to consider the type of property you have before paying property taxes. Here are a few of the options:
- Residential Class A - You'd pay an assessed value of 0.35%.
- Residential A Tier One - You'd pay an assessed value of 0.45%.
- Residential A Tier Two - You'd pay an assessed value of 1.05%.
- Resorts and Hotels - These are given assessed values of 1.39%.
- Bed and Breakfasts - These are given assessed values of 0.65% and often include a short-term vacation rental.
How Can I Lower My Property Taxes in Hawaii?
There aren't many ways to lower your property taxes in Hawaii, but the two options include:
- Filing Exemption Claims - The homeowner exemption is available to those who own and occupy the property as a primary residence and plan to live on the island for a certain number of days (270 in Maui, 181 in Kauai, 270 in Honolulu, and 200 in Hawaii). You cannot rent the property out at all for this exemption, so it won't be suitable for landlords or property managers.
- Appealing the Annual Assessment Notice - You can contest assessed values, but you must have the most recent sold data to back them up. Market swings and properties listed for sale won't affect the home values. However, you can use contractor estimates for repairs and comparable fee market sales to show that your assessed value is higher than the simple fee market value by over 10 percent.
Important Legislature for Hawaii Real Estate Investors and Property Owners
The Real Property Tax Credit is a new homeowner's exemption offered by the County and City of Honolulu. You have to meet certain criteria, such as:
- Not owning property anywhere else
- Having a home exemption at the time you apply and from July 1, 2023, to June 30th of 2024
- Having a combined gross income of less than $100,000 for all title holders in the 2021 calendar year (under 60) or $140,000 if you're over 65 years old.
Owning property in the Aloha State is exhilarating, whether you plan to live there yourself or rent it to another person. As an investment, you have to consider the tax implications.
Navigating the tax system in Hawaii is confusing, but it's crucial to understand your tax rate and safeguard your investment. That means learning how the tax rate is calculated, how often you'll pay, and the options for lowering your bill.
If you're looking for more tips on property management accounting, check out our whitepaper on the best tips for simplifying this complex process.