Non-US Resident Taxation on Real Estate Investments in Hawaii

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Owning rental real estate in Hawaii is a popular investment for many foreign nationals. This post discusses US and Hawaii tax compliance

 

Owning rental real estate in Hawaii is a popular investment because there are numerous advantages to investing in Hawaii real estate. The tax and regulatory environment is not one of them.

I help foreign nationals file US and HI tax returns here in the Aloha state. I handle setting up your tax accounts and accomplish routine filings, and provide other assistance online and on the phone. I have been a CPA for 30 years and provide tax preparation and filing services from my office on Maui. I serve international clients with business in the Hawaiian Islands - primarily real estate investments.

Most of my Canadian clients own condo properties and have retained local property managers. I provide tax advice, preparation, and filing services for and serve as a “person on the ground” in Hawaii.

You will be required to file the following returns if you purchase and operate rental real estate in Hawaii:

  • US Federal Income Tax Form 1040NR non-resident personal income tax return(s)

    • This is the basic federal return required of all foreign citizens to report and pay tax on personal income earned in the United States.

    • If you are married and hold the property in common (jointly) each spouse is required to file a separate 1040NR.

  • Hawaii State Income Tax Form N-15 non-resident personal income tax return.

    • This return is very similar to the federal return and is prepared in conjunction with that return

    • Hawaii state returns are more complex than most state (or province) returns. There are significant differences in the treatment of some depreciable assets.

  • Hawaii General Excise and Transient Accommodation tax returns (GET & TAT)

    • Depending on the island you will be responsible to pay the following rates of tax on your collection of gross rents in Hawaii

    • GET tax ranges from 4.0 to 4.5 percent. 

    • TAT tax ranges from 10.25 to 10.75 percent

    • If you rent for periods of 30 days or longer, the TAT tax is not applicable.

Most property owners ‘call out’ GET/TAT on their short term rentals and state them separately from the lodging charges, similar to a hotel bill. Long-term rentals ( >30 days) typically build the GET tax into the rent. Remember no TAT is due on rentals over 30 days.

Be aware that whether you disclose and collect the GET tax, or simply roll it into the rental price – you are responsible for the tax – irrespective if you’ve collected from your customer.

Hawaii GET and TAT are the cause frequent confusion and occasional grief. Filing frequency varies from 3 to 13 returns a year; rates vary from island to island, and; the requirements and filing procedures are not simple.

If your own – or if you’re thinking of owning – rental investment real estate in Hawaii it pays to have an experienced partner in the state.

Call or email today for further information and references. Preparation and filing of all required returns for most clients is around $1,200 depending on complexity, complicating factors, and volume of rental income. I will help you set up first year filings, assist with getting the required licenses and make sure your GET/TAT/US/HI filings are done correctly and on time… while providing you a level of service you’ll appreciate being thousands of miles away.