Hawaii property managers face unique tax obligations that affect business operations and client relationships. Staying current with 2025 tax regulations helps maximize deductions while ensuring full compliance.

What Are The Most Relevant Taxes For Property Managers In Hawaii?

Property managers in Hawaii must handle several key taxes. The General Excise Tax (GET) applies to gross business income at 4.5% on Oahu and 4% on other islands. Unlike sales tax, GET applies to almost all business transactions.

The Transient Accommodations Tax in Hawaii affects properties rented for less than 180 consecutive days. Current rates range from 10.25% to 13.25% depending on the property type. Property managers must collect and remit this tax to the state.

Hawaii income tax also applies to rental income at rates from 1.4% to 11%. Property managers should track all management fees received as this income is taxable.

Property tax rates vary by county and property classification. For example, Honolulu has different rates for residential, hotel, and commercial properties.

How Does Act 20 Impact Tax Filing For 2025?

Act 20 has changed several tax procedures for Hawaii property managers in 2025. The legislation modified how property management companies report client rental income and expenses.

Property managers must now file Form PMT-01 quarterly instead of annually. This form requires detailed reporting of all managed properties, including owner information and tax ID numbers.

The Act also imposes stricter requirements for separating client funds. Property managers must maintain dedicated trust accounts and provide clearer documentation of all financial transactions.

Tax withholding responsibilities have expanded. Managers must now withhold 7.25% of gross rental proceeds from non-resident property owners unless exemption certificates are obtained.

Penalties for non-compliance have increased to $1,000 per violation, making proper documentation essential for property management operations in Hawaii.

Which Tax Forms Should Hawaii Property Managers Use In 2025?

Hawaii property managers need to use specific tax forms for accurate reporting in 2025. Form G-45 is required for filing periodic GET returns, typically filed monthly, quarterly, or semiannually based on tax liability.

Form TA-1 must be submitted for Transient Accommodations Tax reporting. Property managers handling short-term rentals should file this form on the same schedule as their GET returns.

Form N-40, Hawaii Fiduciary Income Tax Return, applies to property managers operating as trustees for client funds. This form requires detailed accounting of all income received and distributed.

For property managers handling non-resident property owners, Form N-288 is necessary for reporting withheld taxes. This must be filed quarterly with remittance of all withheld amounts.

Year-end reporting requires Form N-196, Annual Summary of Hawaii Income Tax Withheld, which summarizes all withholding activities for the calendar year.

General Excise Tax Compliance

Hawaii's General Excise Tax (GET) applies to all business activities including property management services. Property managers must understand their tax obligations to avoid penalties and maximize legitimate deductions.

How Do Property Managers Calculate GET For Rental Income?

Property managers in Hawaii must calculate GET based on the gross rental income they collect from tenants. The standard GET rate is 4% for most islands, with an additional 0.5% surcharge in Honolulu County, making it 4.5% total.

When calculating GET, include:

• Monthly rent payments
• Late fees
• Cleaning fees
• Pet fees
• Parking fees
• Other charges to tenants

Property managers should track these income sources separately in their accounting systems. For management fees earned, these are also subject to GET at the same rates.

Many property managers pass the GET cost to tenants by adding it to the rent. This practice is legal but must be clearly disclosed in lease agreements.

For example, on a $2,000 monthly rental:

• Oahu: $2,000 × 4.5% = $90 GET
• Other islands: $2,000 × 4% = $80 GET

What Exemptions Apply To Property Management Income?

Several exemptions can reduce a property manager's GET liability. Security deposits held in trust accounts are not subject to GET until they're applied as rent or retained for damages.

Reimbursements for expenses paid on behalf of owners may qualify for exemptions if properly structured. These might include:

• Insurance payments
• Property tax payments
• Utility payments
• Repair costs

The wholesale rate of 0.5% may apply to income that property managers collect on behalf of property owners. This significantly reduces tax liability compared to the standard retail rate.

Property managers must maintain detailed records and obtain proper documentation. This includes resale certificates when applying wholesale rates and documentation of expenses that qualify for exemptions.

How Often Should GET Be Filed And Paid?

Filing frequency for Hawaii GET depends on annual tax liability:

Annual Tax Liability     Filing Frequency     Due Date
‍Under $2,000                      Annual                 April 20
$2,000 - $4,000                Quarterly           20th after quarter end
Over $4,000                       Monthly            20th of following month

Most property management companies file monthly or quarterly due to their volume of business. New businesses typically start with quarterly filing until the Department of Taxation determines their appropriate schedule.

Property managers must file Form G-45 for periodic returns and Form G-49 for annual reconciliation. Electronic filing is available and preferred through Hawaii Tax Online.

Late filings incur penalties of 5% per month up to 25% of unpaid taxes, plus interest. Filing on time even without full payment reduces penalties.

Transient Accommodations Tax Changes

Hawaii's Transient Accommodations Tax (TAT) has undergone significant modifications that affect property managers across the islands. These changes impact collection responsibilities, tax rates, and how shared bookings should be handled.

Who Is Responsible For Collecting And Remitting TAT?

Property managers are primarily responsible for collecting and remitting the Transient Accommodations Tax in Hawaii. This responsibility applies to anyone who rents out a property for less than 180 consecutive days.

The tax must be collected from guests at the time of payment and then remitted to the Hawaii Department of Taxation. Property managers must register with the tax department before collecting TAT.

For vacation rental platforms like Airbnb and VRBO, most now collect and remit TAT automatically on behalf of hosts. However, property managers should verify this arrangement as they remain ultimately responsible if the platform fails to remit.

Property managers handling multiple properties must maintain detailed records of all transactions. These records should clearly separate the rental amount from the transient accommodations tax amounts collected.

How Has The TAT Rate Changed In 2025?

The TAT rate in Hawaii will increase by 0.75% starting January 1, 2026, according to Act 96 of the 2025 Legislative Session. The rate will rise from the current 10.25% to 11.00% on gross rental proceeds from transient accommodations.

This statewide increase affects all property types subject to TAT including hotels, vacation rentals, and timeshares. Property managers must update their billing systems before the effective date.

In addition to the state TAT, counties may impose their own surcharges. For example, Hawaii County distributes a 3% county portion of the TAT.

Another significant change is the new application of TAT to cruise fares. Previously exempt, cruise packages will now incur this tax, affecting property managers who coordinate combined land-sea vacation packages.

How Should Property Managers Handle Shared Bookings?

When managing shared bookings—where multiple parties split accommodation costs—property managers must apply TAT to the total accommodation charge. The tax cannot be divided among guests; it must be calculated on the full amount.

For property managers handling split payments, create a system that collects the full TAT upfront from the primary booking party. This prevents tax shortfalls when individual parties pay separately.

Keep detailed documentation showing:

• Total accommodation charge
• TAT collected
• Who paid what portion
• Dates of occupancy

When using booking platforms, ensure they properly apply TAT to the entire booking amount, not just individual payments. Some platforms may not handle shared bookings correctly regarding tax calculations.

For long-term shared accommodations that transition between guests, carefully track stay durations. If any single guest stays less than 180 days, that portion remains subject to TAT even if the total booking exceeds the 180-day threshold.

Deductible Expenses For Property Managers

Property managers in Hawaii can benefit from several tax deductions that can significantly reduce their tax burden. These deductions apply to management fees, maintenance costs, and property depreciation.

Which Management Fees Qualify As Tax Deductions?

Property management fees are fully tax-deductible as ordinary business expenses. These include fees paid for tenant screening, rent collection, property inspections, and administrative services.

According to recent industry data, about 62% of rental property owners miss out on deducting property management costs, leaving thousands in potential tax savings on the table.

For these deductions to qualify, they must meet the IRS criteria of being both "ordinary" and "necessary" expenses for operating rental properties. Ordinary expenses are those common in the rental business, while necessary expenses help manage the property effectively.

Documentation is crucial. Keep detailed records of all management fee payments, including invoices and receipts, to support your deduction claims during tax filing.

Can Maintenance And Repairs Be Deducted In Hawaii?

Yes, maintenance and repairs related to normal wear and tear are fully deductible in the year they occur. This includes plumbing fixes, painting, appliance repairs, and landscape maintenance.

Hawaii's tropical climate often necessitates more frequent maintenance due to humidity and salt air exposure. These environment-specific repairs are legitimate deductions.

It's important to distinguish between repairs and improvements. Repairs maintain the property in its current condition and are immediately deductible. Improvements that add value or extend the property's life must be depreciated over time.

Hawaii's property tax rate of 0.32% is the lowest in the nation, offering financial advantages to property owners when combined with maintenance deductions.

Keep complete records of all maintenance expenses, including contractor invoices, material receipts, and payment confirmations.

How Should Depreciation Be Reported For Managed Properties?

Depreciation allows property managers to deduct the cost of the building over its useful life, set at 27.5 years for residential properties. Land value is not depreciable.

To calculate depreciation, determine the property's basis (purchase price plus closing costs and improvements) minus the land value. Divide this amount by 27.5 to find your annual depreciation deduction.

Property managers must report depreciation on IRS Form 4562 and Schedule E. Starting in 2018, pass-through business owners like property managers may qualify for an additional deduction under IRC Section 199A.

Hawaii follows federal guidelines for depreciation reporting, but local tax professionals can help navigate Hawaii-specific considerations.

Depreciation recapture taxes apply when selling a property, so consult with a tax professional to understand the long-term implications of claiming depreciation deductions.

Recordkeeping And Documentation

Proper documentation is critical for Hawaii property managers to maintain tax compliance and maximize deductions. Organized records protect your business during audits and help track financial performance.

What Records Must Be Maintained For Tax Purposes?

Hawaii property managers must keep comprehensive records of all income and expenses related to rental properties. These include:

Income Records:

• Rent payments
• Security deposits
• Application fees
• Late fees
• Other income sources

Expense Records:

• Repair and maintenance receipts
• Insurance premiums
• Property tax payments
• Mortgage interest statements
• Utility bills paid by the manager
• Property management fees documentation

Hawaii follows strict standards for reporting and record-keeping to ensure transparency. Property managers should organize receipts by property and expense category to simplify tax preparation.

It's essential to maintain records of depreciation calculations for each property. These calculations affect both Hawaii state taxes and federal returns.

How Long Should Property Managers Retain Tax Documents?

The general rule for tax document retention in Hawaii is to keep records for at least 7 years after filing. However, certain documents require longer retention periods:

7-Year Records:

• Income and expense receipts
• Bank statements
• Tax returns
• 1099 forms

Indefinite Retention:

• Property purchase documents
• Capital improvement receipts
• Depreciation schedules
• Property sale documents

The Hawaii Department of Taxation may audit returns up to 3 years after filing, but this extends to 6 years if substantial income is omitted. For suspected fraud, there is no time limit on audits.

Digital backups of all tax documents provide additional security against loss from Hawaii's unique challenges like humidity damage or natural disasters.

Best Practices For Digital Versus Paper Recordkeeping

Digital record-keeping offers significant advantages for Hawaii property managers, particularly those managing vacation rentals across islands.

Digital Advantages:

• Cloud storage protects against Hawaii's humidity and potential natural disasters
• Easy searching and categorization
• Automated backup systems
• Access from multiple locations
• Integration with rental property tax software

Many Hawaii property managers use digital systems that automatically categorize expenses and generate tax reports. These systems can flag potential deductions specific to Hawaii properties.

For those who prefer hybrid systems, scan paper documents immediately upon receipt and organize them by property, year, and category. Store original paper documents in waterproof containers due to Hawaii's humidity.

Set calendar reminders for quarterly tax deadlines and annual filing dates. This practice helps avoid late penalties while ensuring all available deductions are claimed.

Handling Owner Payments And Tax Withholding

Property managers in Hawaii must follow specific tax rules when handling payments to property owners. These requirements include potential tax withholding for nonresident owners, accurate reporting of distributions, and understanding how income passes through to owners.

Are Property Managers Required To Withhold Hawaii Taxes For Nonresident Owners?

Yes, property managers in Hawaii must withhold taxes for nonresident property owners. The state requires a 7.25% withholding on the gross rental proceeds when managing property for owners who live outside Hawaii.

This withholding requirement applies to all types of rental income before deducting expenses. Property managers must remit these funds to the Hawaii Department of Taxation using Form N-288.

Exceptions exist for owners who have:

• Filed Form N-848 (Rental Real Property Withholding Exemption)
• Received an approved exemption certificate
• Made estimated tax payments that satisfy their Hawaii tax obligations

Failure to withhold can make the property manager personally liable for unpaid taxes. Keep detailed records of all withholdings and payments to avoid penalties.

How To Report Owner Distributions Correctly

Property managers must issue Form 1099-MISC to owners who receive $600 or more in rental income during the tax year. This form must be provided to owners by January 31, 2026 for the 2025 tax year.

Additionally, property managers handling short-term vacation rentals must report Transient Accommodations Tax (TAT) collections separately. This includes:

1. Recording all owner distributions in accounting software
2. Clearly showing management fees, maintenance costs, and other expenses
3. Documenting TAT and GET tax payments made on the owner's behalf

Monthly owner statements should itemize:

• Gross rental income
• All expenses and fees
• Tax withholdings
• Net amount distributed

Keep these records for at least seven years to support both your tax filings and the owner's returns.

Tax Implications Of Pass-Through Income For Owners

Rental property income typically passes through to owners, who report it on their personal tax returns. For Hawaii properties, this creates several tax considerations.

Owners must pay Hawaii General Excise Tax (GET) at 4.5% on gross rental proceeds. This differs from income tax and applies even if the property operates at a loss. Property managers should clarify that GET payments aren't deductible against GET liability but are deductible on income taxes.

For properties rented less than 180 consecutive days, the Transient Accommodations Tax applies in addition to GET. These tax payments themselves are considered deductible business expenses for income tax purposes.

Property owners can deduct:

• Management fees
• Maintenance costs
• Property taxes
• Insurance
• Mortgage interest

Depreciation provides a significant tax benefit but involves complex calculations based on property type and acquisition date.

Avoiding Penalties And Common Tax Mistakes

Hawaii property managers face unique tax requirements that can lead to costly penalties if mishandled. Proper tax preparation and timely filing are essential for maintaining compliance with state regulations.

Which Filing Errors Commonly Affect Property Management Companies?

Property management companies in Hawaii frequently encounter several filing mistakes that trigger penalties:

• Missing or incorrect TAT registration: Failing to register for the Transient Accommodations Tax when managing short-term rentals can result in substantial fines.
• Improper expense categorization: Misclassifying personal expenses as business deductions raises red flags with tax authorities.
• Incomplete documentation: Property managers must maintain detailed records of all:
  • Income sources
  • Operating expenses
  • Maintenance costs
  • Capital improvements

One frequent mistake is incorrect calculation of the General Excise Tax (GET). Unlike sales tax, GET applies to gross income with few exemptions. Property managers should use the correct tax rate based on the island where the property is located.

Forgetting to issue 1099 forms to contractors who received $600+ in a calendar year can also result in penalties of $50-$270 per form.

Tips To Prevent Missing Hawaii Tax Deadlines

Hawaii has specific tax deadlines that property managers must track carefully:

1. Create a tax calendar: Mark all quarterly and annual filing dates for GET, TAT, and property taxes.
2. Set up automatic reminders: Configure alerts 30, 15, and 5 days before deadlines.
3. Implement digital payment systems: E-filing reduces errors and provides confirmation receipts.

Property tax in Hawaii has the lowest rate nationwide at 0.32%, but missing payment deadlines incurs a 10% penalty plus interest. Filing extensions are available but must be requested before the original due date.

For monthly TAT and GET filings, payments are due by the 20th of the following month. Quarterly filers must submit by the 20th of the month following each quarter's end.

Consider hiring a Hawaii-based tax professional familiar with local property management regulations to ensure compliance with all filing requirements.

What Triggers An Audit For Property Managers In Hawaii?

Several factors may flag a property management company for audit by Hawaii tax authorities:

Income discrepancies top the list of audit triggers. Tax authorities compare reported rental income with:

• Bank deposits
• Property occupancy rates
• Market rental values
• Third-party booking platform reports

Excessive deductions relative to income raise suspicion. Property managers claiming unusually high expenses compared to industry standards face increased scrutiny.

Inconsistent reporting between state and federal returns attracts attention. Hawaii tax authorities regularly cross-reference information with IRS filings to identify discrepancies.

Prior compliance issues also increase audit risk. Companies with a history of late filings, penalties, or past audit adjustments face higher chances of repeated examination.

Random selection still occurs. Even perfectly compliant property managers may be selected through Hawaii's regular audit program that examines a percentage of returns annually.

Working With Hawaii Tax Professionals

Property managers in Hawaii need expert guidance to navigate tax obligations and maximize deductions. Tax professionals understand the unique requirements for rental property taxation in the state.

When Should Property Managers Consult A Tax Advisor?

Property managers should seek tax advice when acquiring new properties or facing significant changes in their business. The start of expansion plans, like adding multiple units to a portfolio, often triggers complex tax situations.

Tax consultation is crucial before making major renovations or improvements to rental properties. These expenditures might qualify for deductions or depreciation benefits that require proper documentation.

During audit notifications from the Hawaii Department of Taxation, professional representation is essential. A tax advisor can help prepare documentation and represent your interests.

Property tax specialists can also assist when you're considering changing your business structure or ownership arrangements. These transitions have significant tax implications that require expert guidance.

What To Look For In A Hawaii Tax Service Provider

Choose a tax professional with specific experience in Hawaii rental property taxation. They should demonstrate knowledge of both state-specific rules and federal regulations affecting rental income.

Look for providers who stay current with tax law changes. Hawaii's tax codes evolve, and your advisor should proactively inform you about updates that affect your business.

Accessibility matters when selecting a tax service. Your provider should be available for questions throughout the year, not just during tax season.

Consider professionals who offer technology solutions for document management and tax filing. The ability to file taxes electronically saves time and reduces errors.

Verify that potential tax advisors have experience with property management clients similar to your business size. They should understand the specific challenges of your portfolio type.

How Professionals Can Assist With Complex Filings

Tax professionals help identify all legitimate deductions available to property managers. They understand the nuances of depreciation schedules, repair versus improvement classifications, and pass-through deduction opportunities.

They ensure compliance with Hawaii's transient accommodations tax for short-term rentals. This specialized tax has specific filing requirements that differ from standard income tax procedures.

Experts can develop tax strategies that account for Hawaii's unique income tax structure. With state rates reaching up to 11% in 2025, proper planning is essential for profitability.

Professional preparers reduce audit risk by ensuring accurate reporting of rental income and expenses. They know which documentation is needed to substantiate claims on your tax returns.

Tax advisors also help with estimated tax payments throughout the year, preventing penalties for underpayment and managing cash flow for your property management business.

Frequently Asked Questions

Hawaii property tax rules change regularly, affecting both property managers and owners. Tax rates, deductions, exemptions, and filing deadlines are essential aspects to track for proper financial management.

What are the updated tax rates for residential properties in Honolulu for the year 2025?

Honolulu's residential property tax rates have seen adjustments for the 2025 fiscal year. The rates impact monthly escrow calculations and annual budgeting for property managers.

Property managers should note that the Oahu property tax changes in 2025 may lead to higher taxes on managed properties. These increases affect your clients' overall cost of ownership.

For investment properties and second homes, rates have increased more significantly than for owner-occupied properties, requiring careful financial planning for your clients.

How can property management fees in Hawaii impact tax reporting for 2025?

Property management fees remain tax-deductible expenses for property owners in 2025. These deductions can significantly reduce taxable income for investment property owners.

When managing short-term rentals, the Transient Accommodations Tax payments are deductible business expenses. Property managers must accurately document these payments for clients' tax purposes.

Property management companies should provide detailed year-end statements showing all deductible expenses to help clients maximize their tax benefits.

Are there any new tax exemptions or credits for property owners in Hawaii in 2025?

Hawaii has introduced several new property tax exemptions and credits for 2025. These changes affect how property managers should advise clients on tax planning.

The Department of Taxation has updated its guidance on residential property tax exemptions. Property managers should review the state's latest tax brochures to understand these changes.

Age-related exemptions, home office deductions, and energy improvement credits have all seen modifications that may benefit your clients.

What is the deadline for filing property management-related taxes in Hawaii for 2025?

Property tax filings follow specific deadlines that property managers must track carefully. The Hawaii Department of Taxation has established key dates for 2025 filings.

For property tax-related matters, the Council on Revenues has scheduled important meetings on August 28 (Maui) and September 4 (O'ahu), 2025, which may affect final tax determinations.

Property managers handling transient accommodations should note monthly and quarterly filing requirements for TAT taxes throughout 2025.

How do non-resident property tax rates in Hawaii differ from resident rates in 2025?

Non-resident property owners face different tax treatment than residents in Hawaii for 2025. Property managers with non-resident clients should be particularly attentive to these differences.

The tax rate disparity between resident and non-resident property owners has widened in 2025. Non-residents typically pay higher rates, which affects return on investment calculations.

Property managers should inform non-resident clients about Hawaii's tax clearance procedures as outlined in the state's tax clearance brochure to avoid compliance issues.

What age qualifies for property tax exemption in Hawaii as of 2025?

Age-based property tax exemptions in Hawaii provide significant benefits for qualifying senior homeowners. Property managers should identify eligible clients and help them apply.

The qualification age remains 65 for senior exemptions in most Hawaii counties for 2025. Documentation requirements include proof of age and property ownership.

Property managers should note that exemption amounts vary by county, with some areas offering more generous benefits to older homeowners.

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