What Are the Property Tax Differences Between a Second Home and a Serviced Apartment in Hawaii?

Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.

Q:I'm considering buying one of two properties as a second home in Hawaii: a home or a serviced apartment. What are the differences in property taxes?

"The key question is what tax classification would apply to the property," said Ron Heller, director at Torkildson Katz Moore Hetherington Harris law firm in Honolulu.

Broadly, Hawaii’s four counties set property tax rates according to use, said Ray Kamikawa, partner at the Honolulu law firm of Chun Kerr. Honolulu, for instance, has eight classifications, including residential, commercial, agriculture and preservation, he said. 

There is no tax classification for serviced apartments as such, Mr. Heller said. Serviced apartments, also known as extended-stay units, are furnished units that offer hotel-like amenities such as kitchens, health clubs and housekeeping services. "Depending on the facts and circumstances [of the unit and its use], it could be residential, hotel & resort, or it could conceivably be commercial," he said.

"In a traditional hotel, where one owner owns the entire building and rooms are rented on a short-term basis, the classification will probably be hotel & resort. Another building may be very similar in terms of the services offered, but with separate owners for each unit. In the latter case, the tax classification of a particular unit may depend on the actual use of the unit," Mr. Heller said.   

"Any generalization may be an oversimplification," he cautioned. "A potential buyer needs to check out the specific facts and rules that apply to any particular unit, and consider his or her own intended use."

Residential property is taxed at a low rate, with commercial property taxed at a higher rate and resort property taxed at the highest rate. A second home would be considered a non-primary home for tax purposes.

Tax rates for non-primary homes in the four counties are as follows: For Honolulu, the rate is tiered at $4.50 per $1,000 of assessed value of up to $1 million and $9 per $1,000 of value over $1 million. For Maui County, it’s $5.54 per $1,000, $6.05 per $1,000 for Kauai and $11.10 for the County of Hawaii, Mr. Kamikawa explained.

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"Relatively speaking, we have one of the lowest property taxes [in the U.S.]," he said. "Property taxes in Hawaii are skewed downward because we have a centralized state tax system that relies mostly on income tax and general excise to fund services such as education, which is normally funded by property taxes in other states."

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