Oahu Rules for Short-Term Vacation Rental Properties

Since Oahu is a popular destination for travelers, owning a Short-Term Rental on Oahu, as an investment property, can be a great idea. But are vacation rentals illegal on Oahu? No, however, not ALL properties can be legally rented on a short-term basis. There are some strict limitations of short-term rentals on Oahu. Homeowners and investors should be aware of the current Oahu rules for short term rentals, to ensure that their Oahu vacation rental properties are operated legally.

Honolulu recently ranked #5 in "The Top 15 Best Cities in the United States" by Travel + Leisure magazine.

WHAT IS A SHORT TERM RENTAL ON OAHU?

On Oahu, a short-term rental (STR), also known as a vacation rental, is a home or condominium that provides guest accommodations for less than 30 consecutive days. But not all short term vacation rentals on Oahu are legal.

A short-term rental provides guest accommodations for less than 30 consecutive days.

Which Short-Term Rentals on Oahu Are Legal?

There are THREE Types of LEGAL short-term rentals on Oahu.

1. Properties with a Non-Conforming Use Certificate (NUC).

In the City and County of Honolulu, there are two types of properties that have NUCs. The first is Bed and Breakfast Homes (B&Bs). To maintain a B&B certificate, the homeowner or permanent resident must live on the property and be present during a guest's stay. Only up to two specifically-designated bedrooms in the home may be rented.

The second type of NUC is a Transient Vacation Unit (TVU). A TVU may be an entire house or condo, and the owner need not be present on the premises during rental.

For both types, there is a maximum of two adults per room rented and additional off-street parking, one space per room rented, must be provided. Other requirements, such as insurance and payment of GET and TAT (taxes), and restrictions apply. Properties with a NUC must be renewed annually to continue operating as a STR. New NUCs are not being issued.

The current list of Oahu properties with a NUC can be found here. Most of these NUC properties are in Waikiki condominium buildings, but others are single-family homes in residential-zoned areas. These are usually in popular Oahu neighborhoods, near beautiful beaches, such as Diamond Head, Kailua Beachside, Kailua Lanikai, and Waimanalo, and on Oahu's North Shore.

There are THREE types of LEGAL short-term rental properties on Oahu.

2. Properties in a Resort-Zoned Area

The second group of Legal Short Term Rentals on Oahu are the resort-zoned properties. These are allowed because of the zoning of the area in which they are located. Areas which are resort-zoned, or which include pockets of resort zoning, include Waikiki, Turtle Bay, and Ko’olina. Ask your realtor to verify three things when you are purchasing a home as a vacation rental:

• that a property is truly within a resort-zoned area or whether it has been grandfathered in
• that it is not within a period where it has been "dedicated for residential use," and also,
• that the particular resort-zoned building's AOAO allows STRs.

There are some buildings in resort-zoned areas that are eligible to operate as STRs, but their AOAO has decided not to operate as such and they have imposed minimum rental periods different that those authorized by the City and County of Honolulu. Also, in some cases, individual owners may have filed with the City to dedicated their unit for residential use for a 5-year period to obtain tax savings. If an owner wishes to change from residential to non-residential use during the applicable 5-year period, back taxes at the resort rate may be owned. Resort-zoned properties are taxed at a significantly higher rate than residential-zoned properties. See Oahu Property Tax Rates Here.

3. Condotel Properties Specifically Grandfathered in as Legal STRs

The last group of legal Short Term Rentals on Oahu has been grandfathered into compliance. These are certain properties which are near resort-zoned areas and which have been traditionally operated as a Condotel property (with hotel front desk, etc.), though they do not have resort zoning. Examples are the Waikiki Banyan and Waikiki Sunset condominiums, which are both in Waikiki and have historically been operated as a hotel properties, with vacation rentals, but are in residential zoning districts. 

Bills 89 and 41 have changed the short-term vacation rental inventory on Oahu and legal STRs have become more valuable.

RELEVANT STR LAWS

When considering whether to purchase or operate a vacation rental home, it is helpful to be aware of the short term rental laws on Oahu (City and County of Honolulu) and the history of vacation rentals on Oahu. Read on for more information. As always, laws are subject to change.

Bill 89 Passed

Bill 89 was adopted June 25, 2019. Bill 89 was opposed by short-term rental owner associations and promoted by the hotel industry, among others. Bill 89 added stricter penalties and enforcement provisions against Oahu property owners who illegally advertised their vacation rental properties for rental terms of less than 30 days. Another important feature of Bill 89 was that it would allow up to 1,699 new B&B permits, with restrictions, on a first-come-first-served basis or by lottery, starting October 2020. 

Interestingly, people often refer to Bill 89 as the "law which made vacation rentals illegal on Oahu." In fact, short-term rentals not falling into one of the three categories stated above, have been illegal on Oahu for decades. Bill 89 just ramped up enforcement of the existing laws and increased penalties against these illegal rentals in operation. Also, those interested in STRs should note that the new B&B registrations by lottery proposed by Bill 89 never occurred. Of course, the pandemic changed a lot of things and this is probably one of them. No new NUCs were issued in October 2022, and, to my knowledge, there are no plans for this to change.

Bill 41 Passed & Enjoined

Even after Bill 89 was passed, local opposition to vacation rentals on Oahu persisted, with particular ongoing support from the very powerful hotel industry. The pandemic also helped to create a real estate landscape which made home ownership less affordable and decreased the availability of rentals. This created more momentum from affordable housing proponents and neighborhood groups, and pushed local politicians to pass even stricter vacation rental regulations on Oahu. This is Bill 41.

Bill 41 was signed into law on April 26, 2022, and the wide-reaching provisions therein were set to affect almost every homeowner on Oahu. The most impactful and also, unpopular provision of Bill 41 was that it would change the minimum rental period for all single-family homes and condos that do not fall within one of the three legal short term rental groups above, from 30 to 90 days. This would impact not just the vacation rental industry, but also short-term (30-90 day) rentals for military service members, traveling nurses, movie industry professionals, local homeowners doing construction, and other people needing short term accommodations that are not on Oahu for vacation.

Prior to its effective date of October 24, 2022, on October 13, 2022, a federal judge issued a preliminary injunction on the section of Bill 41 that concerned changing the minimum rental term from 30 to 90 days. This means that the 30 day minimum rental period is still in effect. In an interview with Hawai'i Public Radio, Honolulu Mayor Blangiardi stated that the City and County of Honolulu will not appeal the judge’s injunction.

Notwithstanding the injunction, other provisions of Bill 41 went into effect, as planned, in October 2022. Bill 41 also requires all legal Short-Term Rentals on Oahu to be registered with the City and requires a registration fee and annual renewal fee for all STRs. Currently (November 2022), it is $1,000 for the registration fee and $500 for the annual renewal fee.  To check if a particular property is eligible for registration a legal short term rental, you can check the STR Eligibility Map for the City and County of Honolulu.

Also, the fines for illegally operating a STR have been raised. There is now a $5,000 fine just for advertising an illegal STR, and additional fines of up to $10,000 per day for non-compliance. If fines are not paid, the City may place a lien on the property illegally advertised.

RESOURCES:

The City and County of Honolulu has a website with more information on legal short term rentals and registration of your short term rental on Oahu. You can view it here.

Please note that the information above is not legal advice and it's subject to change. Please feel free also to reach out to me if you have questions about a particular property or if you are looking for an Oahu rental property, or to purchase a legal short-term rental or vacation home on Oahu.
Yvonne Jaramillo Ahearn
RB-20262 COMPASS OAHU
cell: 808.721.8088

GET on Oahu

Some of the questions we are asked by buyers purchasing homes on Oahu are about taxes. As mentioned previously, Hawaii Real Property Taxes are among the lowest in the entire United States. We love this about Hawaii! However, we do have other taxes, such as GET, which will impact homeowners.

Hawaii General Excise Tax (GET)

One of these taxes is the Hawaii General Excise Tax. This tax is assessed by each County, based upon the gross revenue received by a taxpayer. Many people confuse the Hawaii General Excise Tax with sales tax because it is generally tacked on to the price of goods and services purchased, like a sales tax. You will see GET on your check at a restaurant and on your receipt at a clothing store in the mall, just like a sales tax. There are some significant differences, however, and this is not a sales tax. Hawaii does not have a sales tax. But you should be aware, if you are self-employed, you will owe GET tax to the State of Hawaii, in addition to both state and federal income tax.

Differences Between Sales Tax and Hawaii GET

With a sales tax, the tax is assessed against a PURCHASER of goods and services at the time of purchase. Though, if the provider of the goods and services does not charge the purchaser the sales tax, for whatever reason, the provider may still be liable for this tax. With Hawaii GET, the tax is assessed against the PROVIDER of the goods and services, who is authorized by the State of Hawaii to pass the tax on to the purchaser. A provider is always responsible for the tax and it is paid later, to the State. Importantly, it is assessed upon gross receipts, without taking into account costs or expenses, and whether there is any profit at all from the transaction. GET is assessed also regardless of whether it is passed on to the purchaser. The consolation, if any, is that there is no sales tax in Hawaii and GET on Oahu and the other islands is much lower than most sales taxes assessed on the mainland.

What is Oahu GET?

For 2022, the Hawaii GET is 4%. There is also a Honolulu County (Oahu) surcharge of 0.5%, for a total of 4.5% GET. Consumers will see this passed on as a tax of 4.712% on their bills for goods and services, because GET is actually owed on the tax collected. Yes, there is GET on the GET!

How Does GET Impact an Oahu Homeowner?

You will see GET passed on to you on the following:

~ Your purchases at retail establishments
~ Services from people such as contractors, plumbers, electricians, etc.
~ Services provided by Realtors, lawyers, accountants, and other licensed professionals
~ Online purchases shipped to Hawaii

You also will owe GET yourself, even if you are not self-employed, for:
~ Rental revenue received for investment properties
~ 1099 income received from any source

NOTE: You do NOT owe GET for income received through capital gains in selling a home (this is covered by federal and state Capital Gains Tax) or on the sale price of a home (this is covered by Conveyance Tax).

This is not an all inclusive list of items which warrant payment of GET to the State of Hawaii. Please consult with your tax professional for detailed questions on whether or not you will owe GET for any particular circumstance.

Oahu Real Property Taxes for 2022-2023

Nothing much changed from last year, with respect to the Honolulu County (aka Oahu) Property Tax Rates charged to residential property owners. (See Resolution 22-45, adopted 6/1/2022 by the Honolulu County City Council). Particularly, one great thing that did not change is that Hawaii real property tax rates fare, overall, the lowest in the United States.

Home Exemption Stays Constant

The amounts of an owner-occupant Home Exemption also stayed constant. The general exemption remained at $100,000. In addition, the tax exemption for owner-occupant seniors, over age 65 remained steady at $140,000.

How The Owner-Occupant Home Exemption Works

To be eligible for a home exemption you and your property must meet the following criteria:

(1) You own and occupy the property as your principal home (the dwelling
where you live most of the year or more than 270 calendar days per
year);
(2) Ownership of the property is duly recorded at the Bureau of
Conveyances or duly filed in the office of the assistant registrar of
land court if the property is registered in land court pursuant to HRS
Ch. 501, on or before September 30th;
(3) In the case of a lease, the lease of the parcel has a term of five (5)
years or more, used for residential purposes as the lessee's principal
home, the lease and any extension, renewal, assignment or agreement
to assign the lease is duly recorded at the Bureau or duly filed in the
office of the assistant registrar of land court if the property is
registered in land court, the lessee agreed under the lease to pay all
real property taxes during the term of the lease, by September 30th; and
(4) You file a claim for home exemption with the Real Property
Assessment Division on or before September 30th preceding the tax
year for which you claim exemption.
** A separate exemption claim should be submitted for each owner occupant

If you are eligible for a home exemption, the amount of your exemption is deducted from the total assessed value of the land plus improvements. This leaves you with a figure called “net taxable value” upon which your Oahu real property taxes are calculated.

Stunning mountain view in Kaneohe, Oahu, Hawaii, to take your mind off Oahu Real Property Tax Rates

Oahu Real Property Tax Rates for 2022 and 2023 Fiscal Year

There no substantive changes to the real property tax rates, themselves, over those charged in the 2021-2022 FY.

Here are all of the categories and the applicable rates:

HONOLULU COUNTY OAHU PROPERTY TAX RATES
July 2022-June 2023
(Amount of Tax Per $1000 of Net Taxable Value)Residential (A)$3.50Hotel and Resort (B)$13.90Commercial (C)$12.40Industrial (D)$12.40Agricultural (E)$5.70Preservation (F)$5.70Public Service (G)$0.00Vacant Agricultural (H)$8.50Residential A – Tier 1 (I)
(Applied to the net taxable value of the property up to $1,000,000)$4.50Residential A – Tier 2
(Applied to the net taxable value of the property in excess of $1,000,000)$10.50Bed & Breakfast Home (J)$6.50

Calculating Oahu Property Tax Rates for RES-A Properties

Residential A properties use a tiered tax calculation. The first $1 million of net assessed value is calculated at one rate and the remainder at another. Here is how it works:

Honolulu Harry owns a Property A in Honolulu County (Oahu) with a net tax assessed value of $1,400,000, and rents Property A out to a long-term tenant. He lives in another home, Property B, on Oahu and takes a home exemption for that property. Since he resides in another home and rents Property A, he is not eligible for a home exemption on Property A.

Harry’s property is a Residential A property (see below). The Oahu property tax rate for the first $1,000,000 of net taxable value (Residential A – Tier 1) is $4.50 per $1,000, so the tax on that portion of Property A is $4,500. The Oahu property tax rate on the next $400,000 (Residential A -Tier 2) is $10.50 per $1,000, so the tax on the second portion of the value is $4,200. Adding those two figures together, the total annual property tax on this Residential A property would be $8,700.

However, If Honolulu Harry resided in Property A (and had applied for and received his owner exemption of $100,000), his total tax on Property A would be $3.50 per $1000 ($3.50 x $1,300,000 /$1,000), for a total annual property tax of $4,550.

Which Properties are Residential A (or RES-A)?

Residential A properties are certain properties on Oahu that are without an owner-occupant home exemption. These are:

1. Condominium units without home exemption.

2. Residential lots zoned R-3.5, R-5, R-7.5, R-10, R-20, with either one or two single family homes, without home exemption.

3. Residential vacant lots zoned R-3.5, R-5, R-7.5, R-10 and R-20.

As you can see from the Honolulu Harry example above, Oahu property tax rates for 2022-2023 are significantly higher for Residential A properties than they are for similarly valued owner-occupied properties.

If you have other questions regarding purchasing Oahu real estate, please contact Yvonne at 808.721.8088. ~ Aloha