There are a number of tax consequences to be considered when either buying or selling a home. While you should consult your own tax advisor for information specific to your circumstances, here is some information relating to taxes on real estate in Hawaii.
Capital Gains and Exclusions for Homeowners
When you sell your home, you may be able to exclude certain gains from income. To learn about these important exclusions, visit www.irs.gov, click the "More Forms and Publications" link, and search for Publication 523, Selling Your Home.
Federal Tax Deductions Related to Home Ownership
There are many potential tax deductions that can be realized when you purchase a home. The tax rules relating to mortgage interest, mortgage points, property taxes, second homes, moving expenses, etc. can be quite complex, however. A good resource for information on the tax benefits of owning a home is IRS Publication 530, Tax Information for First-Time Homeowners. This publication can be found at www.irs.gov (click the "More Forms and Publications" link). If you have any questions about information found in this publication, you should contact your tax advisor.
Local Property Taxes
Hawaii taxes are billed on a semi-annual basis and are due on August 20 and February 20. For a complete schedule of current Hawaii County property tax rates visit the County of Hawaii Property Tax site at www.hawaiipropertytax.com.
Ask for the brochure Explanation of the Real Property Tax from the tax office or your Coldwell Banker Maryl REALTOR®. This brochure explains home exemptions, which reduce the net taxable value of a property if the property is used exclusively as a principal residence. When you purchase a new home, it is important for you to file a claim for exemption by December 31 or June 30.
Non-Resident Real Estate Sales Taxes
HARPTA, Hawaii Real Property Tax Act, requires that the buyer withhold 5% of the gross sales price from a non-resident seller. This withholding is applied to the Hawaii capital gains tax due from the seller. FIRPTA, Foreign Investment in Real Property Tax Act, requires that the buyer withhold from a foreign seller 10% of the gross sales price to pay any seller capital gains tax liability. Be sure to check with your Coldwell Banker Maryl agent and escrow company to comply with the requirements and strict deadlines associated with these laws.
1031 Tax Deferred Exchanges
1031 Tax Deferred Exchanges allow you to exchange investment properties with another party without incurring immediate income tax obligations. The rules in Section 1031 of the Internal Revenue Code of 1986, as amended, allow owners of certain types of property (including real property) to defer capital gains taxes and certain other state and federal taxes, when the transactions are conducted through an intermediary, or an exchange accommodator.
To take advantage of this deferral, the transaction must be established as an exchange before escrow closes on the first transaction, and there are strict deadlines for steps of the complete transaction. Ask your Coldwell Banker Maryl REALTOR® to refer you to an exchange accommodator. Contact your tax professional for details on 1031 exchanges.
Hawaii State Income Tax
For information regarding Hawaii State Income tax refer to the State of Hawaii Department of Taxation website.
Tax information is subject to change. Consult with your accountant or tax attorney for all tax-related matters.