USA – HAWAII Law and Practice Contributed by: Jon Pang, Lisa Broulik and Matthew Cohen, Case Lombardi, A Law Corporation
8. Tax 8.1 VAT and Sales Tax
8.5 Tax Benefits Owners of Hawaiʻi real estate can potentially take advantage of a number of tax advantages, including: • depreciation deductions to reduce taxable income; • homeowner exemptions to reduce real property taxes; • federal mortgage interest deductions; • state and local tax (SALT) federal income deduc - tion; and • tax credits applicable to renewable energy technol - ogy installed on residential property.
Hawaiʻi does not impose VAT or a sales tax on the sale or purchase of corporate real estate. However, a conveyance tax is imposed on the transfer of all real estate; see 2.10 Taxes Applicable to a Transaction . 8.2 Mitigation of Tax Liability Since the conveyance tax is based on the property value, if the transaction involves more than one par - cel, parties will commonly record separate deeds for each parcel, thereby reducing the total conveyance tax payable. 8.3 Municipal Taxes Real estate in Hawaiʻi is subject to county-imposed real property taxes, which are based on types of use that vary by county, but which typically include resi - dential, hotel and resort, commercial, industrial, agri - cultural, etc. There is no separate “business rate”. 8.4 Income Tax Withholding for Foreign Investors Hawaiʻi general excise tax is imposed on gross income from business activities engaged in for gain or eco - nomic benefit, including rental income. Rental income is also subject to Hawaiʻi income tax. The proceeds of sales of Hawaiʻi real property are potentially subject to capital gains tax. FIRPTA and HARPTA withholding (see 2.11 Legal Restrictions on Foreign Investors ) may also apply to such sales by non-US persons and/or non-Hawaiʻi residents.
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