image about Hawaii Property Tax Rate For Non-resident

Hawaii Property Tax Rate For Non-resident

Hawaii purchases for non-residents are common and have raised a pertinent question: How much will you pay in property taxes compared to residents? Hawaii boasts one of the lowest property tax rates in the United States, at a statewide average of about 0.26% of the assessed property value. However, some nuances in the law make it essential to understand how the taxes apply, particularly to non-residents. Luxury Big Island specializes in guiding its clients through the complexity of Hawaii’s property tax system.

What is the Property Tax Rate in Hawaii for Non-residents?

In Hawaii, non-residents typically pay the same base property tax rate as residents. The median property tax is $1,324 annually for a home valued at $517,600, with counties averaging a property tax rate of 0.26% of the assessed fair market value. The rates might be different depending on the local survey made in places such as Honolulu, Maui, and the Big Island. Non-residents are not necessarily subject to higher tax rates, but they may exclude some of the exemptions applicable to residents. 

Understanding Hawaii’s Property Tax System

Hawaii’s property tax is peculiar because it is based on assessed values derived from a yearly estimation by local tax assessors, with estimated values typically equal to fair market values for a property. Therefore, tax bills are computed based on the level of assessed value and the current tax rates, which are subject to change across counties. Hawaii residents and nonresidents alike must pay Hawaii income tax on capital gains recognized on the sale of real property located in Hawaii unless the gain can be excluded under Hawaii income tax law. Many nonresidents never realized that they were subject to Hawaii taxation and did not file a Hawaii income tax return or pay the tax due when they sold a Hawaii property.

Hawaii taxes residents and non-residents alike the capital gains on real property sold within the Hawaiian Islands unless necessarily exempt as per the provision of the Hawaiian tax law. To ensure compliance, the State Department of Taxation mentions that HARPTA mandates that when buying property from a non-resident seller, the purchaser must withhold 5% of the gross sales price and remit such to the state. These are to be reported on Form N-288, along with the necessary attachments, due by the 20th day of the property transfer date. 

Key Differences Between Resident and Non-resident Tax Rates

While non-residents are taxed at the same rate as residents, they do not qualify for homeowner’s exemptions available to primary residents. For a resident, some exemptions would reduce their taxable property value considerably, resulting in less taxes paid every year. In the case of non-residents, taxation is based on the entire assessed value of the property. 

How Property Taxes Are Calculated for Non-residents in Hawaii

Calculating property taxes for non-residents: specifically, the local tax assessor prepares an annual assessment of the value of your property; each county—Honolulu, Maui, Kauai, and Hawaii—has a tax rate attached that is then applied to this value, which is the full assessed value; as non-residents do not qualify to benefit from any exemptions available to a “primary resident,” the calculation uses the full assessed value. It’s simple enough: most of the time, they are higher than what a resident homeowner pays due to the taxes deriving from the exemptions they receive. 

How to File Your Property Taxes as a Non-resident in Hawaii

Filing property taxes as a non-resident in Hawaii includes a few steps.

  • Register your property with the tax office for your county.
  • Look over all the belongings in your real estate to ensure that the assessed value of your property is fair.
  • Usually, the property tax is paid in two installments, the first causing a level of amounts for the residents, generally on a later due date.

Having an attorney or tax expert living in the area may substantially help minimize the work involved and guarantee conformity with the state’s laws. 

Common Property Tax Exemptions for Non-residents

Non-residents of the house owners’ exemption are not given to non-residents as they provide immense solace to residents. But other exemptions could exist. Agricultural property exemptions may include actively farming properties, while historic property exemptions provide some respite for landmark properties with historic significance. 

Additionally, some investment properties may qualify for limited tax relief if they are utilized for specific approved government purposes. Checking into these options with a property tax attorney or advisor would be a good idea. 

Tax Implications of Owning Property in Hawaii as a Non-resident

Owning property in Hawaii as a non-resident comes with specific tax implications, including income tax on rental income and the general excise tax (GET) applicable to rental revenue. The income is subject to Hawaii’s state income tax if you rent your property. Additionally, GET applies to the gross rental proceeds, which can add a layer of complexity for non-resident property owners. 

These taxes are in addition to property taxes and can significantly impact your overall financial strategy. Proper planning and legal guidance are essential to staying compliant while minimizing tax liability.

Impact of Non-resident Status on Hawaii’s County Property Taxes

Counties in Hawaii—such as Honolulu or Maui—may assess additional rates or fees for non-residents who own second homes or investment properties. While the base tax rate remains consistent, these additional assessments can increase overall costs. For example, certain counties impose higher rates for properties that are not owner-occupied or categorized as vacation rentals. Understanding these county-specific rules is crucial for accurate tax planning.

What Happens If You Fail to Pay Property Taxes in Hawaii as a Non-resident?

Neglecting to settle your property taxes in Hawaii can result in severe financial penalties and accrued interest, potentially culminating in foreclosure. If taxes remain unpaid, the local government may place a tax lien on your property, making it difficult to sell or refinance. The property may be sold at a public auction to recover the unpaid taxes in severe cases. Non-residents should be especially vigilant, as unfamiliarity with local tax deadlines or processes can lead to unintentional non-compliance. Seeking assistance from a property tax professional can help you avoid these costly outcomes.

Strategies for Non-residents to Minimize Property Taxes in Hawaii

Non-resident Hawaiian property owners can take various options to minimize their property tax obligation. One approach is to contest the assessment of the property if you feel it has been overvalued. Usually, such a process would require you to present some evidence, like a recent property appraisal, to the local tax office. Further, you could invest in properties that qualify for various agricultural or historical exemptions to reduce your tax burden. 

Finally, suppose you consult a Hawaii property tax attorney. In that case, she can reveal multiple other options for you to deduce and assist you with advice based on your unique situation. Optimize tax strategy is all about planning and being aware. 

Does Hawaii Offer Any Property Tax Deductions for Non-residents?

Hawaii limits property tax benefits, such as deductions, to primary residences. As a result, non-residents are taxed and have no access to any of the exemptions made in favor of full-time residents occupying their properties as homes. Hawaii homeowners can obtain exemptions that lower the taxable value of their property, including a homeowner’s exemption, which reduces the property’s assessed value.

In contrast, non-residents are taxed on the entire assessed value of their properties because most are second homes or investment properties. For instance, a full-time resident with a primary residence assessed at $500,000 qualifies for an exemption against an estimated value of $450,000 and would pay taxes only on that amount. However, a non-resident with a similar property would be burdened with an assessment of $500,000. Such differences highlight the need for a property tax consultant to stipulate ways to diffuse maximum tax liabilities. 

Explore Luxury Properties on the Big Island of Hawaii with Luxury Big Island

At Luxury Big Island, with offices at 1003 Bishop St., Suite 2700, Honolulu, HI, 96813, we specialize in luxury real estate on the Big Island and across Hawaii. Whether you are looking to invest or need assistance with property taxes, our team can help. Contact us today at 808 282 0689 for more information about your options and how we can further assist you.