With the islands' economy doing well and real estate values increasing steadily, the City and County of Honolulu is thinking of ways to bring in more taxes. And we can use the money - public facilities are run down, we have a significant homeless population, roads and water pipes need repair and replacment.
Hawaii is looked upon as a haven for foreign investors. This is not a cheap place to buy property, in part due to foreign investment. The size of Oahu is also a factor - just 600 square miles and this is the favorite place for many, particularly from Asia and Canada.
The City Council's idea for additional revenue was a new property tax - Residential "A." Residential A classification took effect on July 1, 2014.
How it works:
Residential properties on Oahu are normally taxed at $3.50 per $1,000 of assessed value. Properties assessed at $1 million and more which do not have the owner occupant exemption are taxed at the Residential "A" rate. The assessed value is taxed at $6.00 per thousand. That's a significant increase - 71% higher than the $3.50 per thousand rate!
The City Council feels this is a good way to tax wealthy investors. The average Oahu resident is not in the market for a $1 million home - especially as an investment - so you won't hear a lot of protesting. But there are some problems with the law and how it's affected property owners.
Owner Occupant Exemption
Owner occupants are allowed a homeowners exemption of $80,000. The exemption increases to $120,000 when the owner is 65 years of age and older. Other exemptions are available depending on circumstances, for example being disabled or owning a historic residence.
Because Oahu's real property taxes have traditionally been low compared to other states, some homeowners have overlooked filing for the owner occupant exemption. And some of those people felt the sting when they received their tax assessment notices at the "A" rate. Approximately 300 property owners applied for a compromise in September 2014 when they realized their property tax assessments were going way up - usually because they had not applied for the homeowners exemption. The tax office processed the forms that were received by the September 30th deadline and properly filled out. One item overlooked by many homeowners was submitting a copy of their tax return. The tax office examines the tax return to see if the owner has rental income and if so, determines if the owner's property is eligible for the exemption.
Assessed Values Rising
Oahu Investment properties assessed anywhere near $1 million should be watched closely to see if the new assessments reach that figure. If they do, then the assessed value at $1 million and higher will be at the $6 per $1,000 rate. As values creep up owners may find their property taxes increasing significantly.
What to do:
1. If you don't already have a homeowners exemption, apply for it no later than September 30th of each year. Here's the form: Oahu Home Exemption Application Form
2. File an appeal to reduce your tax assessed value. Fill out the form, pay a $25 application fee and mail it to the Real Property Tax office. The tax office will decide and let you know.
Here's the property tax appeal form for fiscal year 2016-2017.
The appeal must be received by the property tax office no later than January 15, 2016.
Considerations for Home Buyers
If you're looking to buy your home (to live in) and its tax assessed value is $1 million or higher, find out if the property currently has a homeowners exemption. If it doesn't, there's a possibility you may end up paying the Residential A rate for a year, until your homeowners exemption kicks in.
The deadline to file for the exemption is September 30th of each year. If you buy an investor-owned home after September 30th there is currently no means to change the property status to owner occupied until the next tax year rolls around . If you buy on September 30th and earlier in the year you can apply for the homeowners exemption and expect it to take effect by the time the next property tax payment is due. The City and County will only accept the application if you're the homeowner of record as of September 30th.
If you're buying a home that's currently owner occupied and with the homeowners exemption, still be certain you file the form when your purchase records. Some realtors (myself included) work directly with their buyers to make sure it gets done. The application should not be delivered to the property tax office until the sale is recorded.
Even if the tax assessed value is less than $1 million, owner occupants are eligible for the $80,000 exemption and that's worth about $280 per year in property tax relief. Don't pass it up!
Aloha, Mike
Michael Bates (Realtor Associate)
RS-54129
iProperties Hawaii
1585 Kapiolani Blvd #1533
Honolulu, HI 96814
Comments(1)