Unique to Hawaii – The Conveyance Tax

Living in Hawaii is a wonderful experience.  Having a home on the Big Island is very unique – the differences are not only the beautiful scenery and luxury properties – but the way property taxes work in Hawaii are a little different too.  Hawaii’s Conveyance Tax is a price example.

Hawaii, at the state level, collects a conveyance tax on every sold property.  Every real estate transaction has a Conveyance Tax.  The tax itself, is paid out of closing and is deducted from any proceeds the seller will receive.  In real estate terms – its paid by the seller at closing.  Although its true that many other states have some sort of tax imposed on real estate transactions, Hawaii’s Conveyance Tax is a little different.

What Is Different With Hawaii’s Conveyance Tax? 

The biggest difference in the Conveyance Tax that Hawaii imposes and other transaction based real estate taxes incurred in other states is –  in Hawaii, the amount of tax is dependent on Homeowner’s Status.  That means that investment properties or other types of real estate purchases are taxed at a higher rate.  If the home being purchased is being occupied by the purchaser, they will have a Homeowner’s Exemption applied, which reduces the amount of Conveyance Tax is incurred.

 The Homeowner’s Exemption

The Homeowner’s Exemption is claiming a property as ones’s principal residence in Hawaii.  In the late 1800’s, the Republic of Hawaii implemented their first home exemption law.  The law was implemented to encourage home ownership and the settlement of land in the area.  The current exemption is $48,000.  The $48,000 is deducted from the assessed value of the property is used as your primary residence and ultimately lowers your tax burden on the home or property.

How is Property Tax Figured in Hawaii?

The Conveyance Tax Rates are assessed on a sliding scale, depending open the value of the property.  For Hawaii residents, the scale starts at $.10 per $100 of the purchase price – as long as the purchase price is below $600,000.  For out of state residents the scale starts at  $.15 per $100.  There are a total of 7 brackets, culminating in a rate of $1.00 for Hawaii residents for a transaction of $10,000,000 or more and a corresponding rate of $1.25 for a non-resident.

Hawaii residents get a substantial tax break over non-residents.  As an example, a $10,000,000 real estate transaction would incur a non resident $25,000 more than the same real estate purchase by a resident.   The total costs to the non-residents seller would be $125,000.  One might think that $25,000 is not a lot of money on a 10,000,000 real estate transaction – a difference of 25K does play a role in multiple offer situations and capitalization rate of larger real estate deals.

To Qualify For the Home Exemption in Hawaii

To qualify for the Home Exemption you must meet some basic criteria.  The three basic criteria are:

  • You plan to live in the home as your principle residence.
  • You must have the record of ownership of the property recorded at the Bureau of Conveyances, State Department of Land and Natural Resources, in Honolulu before 12/31.
  • You file a claim for home exemption (Form P-3) with the Real Property Assessment Division before 12/31 preceding the tax years for which you claim the exemption.

Single vs Multi Home Exemptions

The current law only allows one home exemption per individual.  If a husband and wife do not live together and own their homes on the Big Island separately, each can receive 1/2 of one total exemption.

Some additional details on multi-home exemptions do exist,  mainly for senior citizens and those on fixed incomes. For additional information on the specifics of multi-home exemptions, click here. 

Ask An Expert 

Any real estate transaction has a ton of details that should be addresses.  For most people, purchasing or selling a home is the largest financial transaction of their life.  Hawaii’s Conveyance Tax is but one small item in a long laundry list of things that must be addressed when buying or selling real estate on the Big Island.  That is why you need an expert in real estate.

If you are thinking about selling or buying real estate on the Big Island, just reach out.  I am here to help.

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