Vacation Rentals and Taxes

Aloha,

Today I’m talking about taxes that you’ll pay if you purchase a vacation rental property. Buyer beware because taxes can really add up!

Property Taxes: Property taxes in Maui are paid in 2 installments a year. In most cases, if you have a mortgage, taxes will be paid by mortgage holder. In most cases, your vacation rental property will be classified as ‘Hotel and Resort’ and taxes are $8.20 per $1000 worth of assessed value. See my website to check other classifications. If you have a $500,000 property that is currently assessed at $550,000, your yearly property tax bill will be $4,510. Note: in Maui assessments are recalculated yearly based on current values but are often 1-2 years behind. Right now, assessed values are generally higher than the sold prices.

General Excise Tax (GET): This is generally paid monthly to the state and is 4.166% of any revenues on the property. Let’s assume that you collect 30 days worth of payments at $125 a night. GET would be $156.23 per month or about $1875 per year.

Transient Accommodation Taxes: This is generally known as the tourist tax. Similar to GET, it is paid monthly based on your revenues. The rate is 7.25% so with same assumptions, your tax would be $271.88 per month or $3262.50 per year.

In addition, at the time of sale you may be charged HARPTA and FIRPTA to ensure payment to the State of Hawaii and/or IRS on capital gains. HARPTA is charged to non-Hawaii residents and the rate is 5%. FIRPTA is charged to foreign sellers and the rate is 10%. Neither of these is really a tax. They are withholdings at time a sale to ensure correct filing to cover the taxes.

Back to our example:
You have purchased a $500,000 vacation rental condo in Maui. The current tax assessment on the property is $550,000. You are able to rent it out 30 days a month for an average of $125/night. Your yearly tax bill would be:

• Property taxes: $4510
• GET: $1875
• TAT: $3262.50
• TOTAL/year: $9647.50

As with all taxes, there are exceptions and exemptions. Please consult your tax consultant for more information.