State of Hawaii Conveyance Tax
A Tax on the Sales Price of Your Home or Condo You Need to Consider
Chapter 247 of the Hawaii Revised Statutes, imposes a tax (Conveyance Tax) on all transfers of interest in real estate, including leases, exchanges, and assignments. The Conveyance Tax is a progressive tax based on the purchase price of the real estate property. The rate depends on the asset type and the eligibility of claiming a county real property tax homeowner’s exemption with respect to the property transferred. So basically: Is the property a condominium/single family residence and can you claim a county homeowner’s exemption (residency and primary residence requirements need to be met). If the answer is no to either of these questions then you pay a higher rate of tax. Depending of the value of the property this may or may not be a substantial difference. The lowest rate is currently 0.10% and the highest rate is 1.25%.
While the percentages look low let’s take a look at the impact of the tax for the sale of a home for both $500,000 and $1,500,000.
|Purchase Price of Home||Rate of Tax for Primary Residence||Conveyance Tax for Primary Residence||Rate of Tax for Second Home or Investment Property||Conveyance Tax for Second Home or Investment Property|
Who is responsible for paying the tax you ask? The Seller is responsible for payment and liability of the tax, unless the seller is the United States or the State of Hawaii or any agency or instrumentality thereof which is when the purchaser would then be liable for the tax.
Conveyance tax is generally required to be paid at closing through escrow and should be considered in all closing cost fund requirements. Escrow normally files the form (Form P-64A) and payment with the documents to be recorded at the Bureau of Conveyance. If escrow fails to do this interest and penalties for late filing begin after a ninety day filing period has expired.
Sellers should keep in mind that a substantial tax savings can be realized in some cases by making a minor modification to the sales price. For example if you are on the cusp of a rate level increase in the negotiation of the sales price on your home you might realize some tax savings by cutting the price by a few dollars.
For example: If you are negotiating the sales price for your home to an investor for $2,000,000 your conveyance tax on the $2,000,000 sales price would be $12,000.00, however if you were to sell it for $1,999,000.00 the conveyance tax would be $7,996.00 a tax savings of $4,004 by cutting the price by $1,000.00.
You might also have a minor tax saving by selling to someone who wants to buy it as a primary residence rather than an investment. While you shouldn’t exclude a large number of very qualified investors or second home buyers, since often they are your primary buyers, you should keep the tax in mind when negotiating your sales price and closing fund requirements.
The above information is not be construed as tax or legal advice or opinion. Every sale is different. Please consult with your CPA and/or Tax Attorney for full requirements as it relates to your individual transaction and your personal tax situation.