Tax Requirements for Non-residents Investing in Hawaii Real Estate
Owning a piece of the Aloha State is a popular investment. Hawaii is a high tax state with several layers of tax applicable to residential rentals. Do your homework - avoid unpleasant surprises which may lurk in paradise.
Owning rental real estate in Hawaii is a popular investment for for mainland US residents. There are many advantages to investing in Hawaii real estate but the tax and regulatory environment is not one of them.
If you own or plan to buy real property in Hawaii for short term rentals (less than 30 days), you will owe 14.5 - 15.5% of your gross receipts to state taxing authorities for General Excise (GET) and Transient Accommodation (TAT) taxes. Additionally you will need to file a state income tax return each year and may owe Hawaii capital gains tax upon liquidating your investment. Hawaii will also withhold 7.5% of an out-of-state sellers’ proceeds at the closing table. (HARPTA - similar to FIRPTA and CalFirpta)
Full filing requirements are below.
Over one third of all Hawaii real estate (in terms of value) is owned by residents of the US mainland or foreign countries. Don’t assume that your real estate professional has fully or accurately briefed you on compliance requirements of the HI Dept. of Taxation regarding your new investment. There is a lot of well-intentioned yet inaccurate advice on offer to the non-Hawaii resident. It’s a good idea to at least have a conversation with a Hawaii CPA before buying real estate. Or if not before - certainly after.
Don’t let your investment in paradise turn into a nightmare. If happens. Read this information carefully.
You will be required to file the following returns if you purchase and operate rental real estate in Hawaii.
Hawaii State Income Tax Form N-15 - non-resident personal income tax return.
This return is due in addition to your home state income tax return. For residents in AK/FL/NV/SD/TX/WA/WY you will have to file a state income tax return in Hawaii even though you are in a no income tax state. Many times your local CPA may decline to file a HI return for you. Particularly if you are in a no income tax state.
Hawaii state returns are more complex than most state returns. There are unique features in Hawaii income tax code which are related to rental real estate income, capital gains, depreciation, and transaction taxes.
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.
Hawaii GET and TAT are the cause frequent confusion and occasional grief. Filing frequency varies from 3 to 13 returns due annually. Rates vary from island to island. And the requirements and filing procedures are not simple.
Most out of state owners who rent their condos or other residences in Hawaii utilize property management companies. There are literally hundreds of these companies and most provide accurate advice and offer competent GET/TAT compliance services. Many do not. Smart property owners take steps to ensure proper compliance with these laws. You are ultimately responsible for these taxes and non-compliance is expensive and can ultimately prevent you from selling your property.
If you 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 to discuss how I can help you and what it will cost. I can assist with obtaining required licencing and tax identification numbers, help set up first year filings, and make sure you’re compliant from day one.