Big Island homeowners who rent out parts of their home for six months or more would be eligible for a tax break under a bill approved by the Hawaii County Council.
Bill 175, which the council voted to pass on first reading Wednesday, allows residential properties that are rented out for six months or more to be eligible for the county’s homeowner tax classification, and therefore receive that classification’s tax benefits.
Only principal or primary residences are eligible for the tax classification. Beneficiaries of the classification receive a tax exemption of at least $50,000, or more if the property owner is at least 60 years old, although that exemption cannot be applied to more than one residence per taxpayer.
The classification also prevents beneficiaries’ assessed property values from increasing by over 3% a year and gives them a low tax rate. For fiscal year 2025, that rate is $5.95 per $1,000 of assessed value.
The bill passed Wednesday merely adds a brief clause to the county code stating that a residential rental property is qualified for the classification so long as the rental term is not less than six months. Because it does not change the definition of a principal or primary residence, the owners of a long-term rental property still need to live on it to qualify for the homeowner classification.
The bill also replaces language referring to “husband and wife” with “married persons.”
Hawaii County Real Property Tax Administrator Lisa Miura told the Council that after several sessions discussing the measure, she is comfortable with its final version and is prepared to begin applying the new classification rules when the bill takes effect Jan. 1.
“As long as they are doing long-term rentals, they qualify for the credit,” Miura said.
Hilo Council member Jenn Kagiwada, co-introducer of the bill, said the measure is intended to provide incentives for offering long-term housing to Hawaii residents instead of short-term rentals for visitors.
“Right now, homeowners renting backyard cottages or portions of their homes are technically ineligible for the county’s homeowner exemption unless they are participating in the affordable rental tax class,” Jonathan Helton of the Grassroot Institute of Hawaii wrote in testimony to the Council. “We are unaware of homeowners losing their exemptions on the grounds that they were renting a portion of their property, but island homeowners should not have to worry that this could happen to them. If it were to happen, the effect would be to double or triple their tax bills, amounting to thousands of dollars.”
“With so many folks aging in place and finding space available in their homes to be able to offer to long-term tenants, there have been hurdles to making that a reality,” wrote Jennifer Wilkinson. “The most significant hurdle is the loss of the homeowner tax classification … which quickly makes the rental untenable for older folks on fixed incomes.”
The Council voted unanimously to pass the bill on first reading. It must pass the measure again on second reading at a future meeting, which will then enroll the bill to the mayor’s desk for his signature.
