Maui County Makes Big Changes to Property Taxes for Long-Term Rentals
In an effort to increase the availability of long-term rentals in Maui County, the Maui County Council authorized and the Mayor signed into law a provision that allows for up to a $200,000 exemption on the assessed value of a property for property tax purposes. The exemption is similar to the Homeowners Exemption already available for full-time resident homeowners. This will apply to homes that have a long-term lease of 12 consecutive months or more to the same tenant in place on January 1, 2022. The exemption will apply to both residential and condominium/apartment properties.
To qualify for this exemption a property must be occupied by the same long-term tenant for 12 or more consecutive months. Lease terms of 6 months or month-to-month tenants will not qualify. The effective date of this provision will be January 1, 2022 for long-term leases to be in place. If a property does not have a Homeowners Exemption and has a fixed term lease it will qualify for the entire $200,000 exemption. For properties that do have a Homeowners Exemption in place, and they rent out a separate cottage or ohana, they would qualify for an additional $100,000 long-term rental exemption plus still be classified as Owner Occupied. Apartment and Hotel classified properties also qualify for the $200,000 exemption as long as a 12 consecutive month lease is in place.
This exemption is granted by property so an owner with multiple properties can apply and be granted the exemption for each one. In the instance of renting out a room or portion of a dwelling, this exemption will not apply. Commercially used property will also not qualify. Also if a property is delinquent on property taxes for over one year they may not apply.
In order to qualify an application needs to be submitted to the County of Maui prior to January 1, 2022. The application can be found at the Maui County Real Property Division website.
The application must be completed and submitted along with a copy of the current fixed term lease agreement. The key is the lease must be valid and in place prior to January 1, 2021. If a current lease is expiring prior to the end of 2021, consider renewing the lease so it will qualify. The same applies to leases for a 6-month term or month-to-month tenants. Consider writing the lease for a 12-month lease term.
If a homeowner has multiple properties or uses a property manager this would be a good time to check and update their portfolio. It might be an advantage to review leases that expire in the 1st or 2nd quarters of 2022 and renew them prior to January 1. As this does involve taxes, owners should direct questions regarding planning to their tax specialist.
If you are using a professional property manager they should be able to assist you with questions. If you do not have one, have any questions, or want me to review your property leases, feel free to contact me.