Honolulu residents will see higher property taxes, vehicle registration fees, bus fares and Waikiki parking rates under the budget package passed by the City Council yesterday. Council members voted to raise taxes and fees to avoid any drop-off in major city services and make possible the expansion of a curbside recycling program to the remaining parts of O'ahu amid a slowing economy. The $1.8 billion operating budget now goes to Mayor Mufi Hannemann for his approval. Among the changes that would have the biggest impact on O'ahu residents:
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HAWAII REAL ESTATE CONNECTS THE WORD | ||
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HAWAII INTERNATIONAL REAL ESTATE, LLC |
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Phone: (808) 778-3716 • Fax: (808) 859-5414 • E-mail: Info@HawaiiRealEstatePortal.com • 1888 Kalakaua Avenue, C 312, Honolulu, HI 96815 | ||
For Foreign Buyers Investing in a Second Home in Hawaii
American laws allow foreign investors to make investments in the U.S.A. economy, to acquire businesses or a second home. These laws protect foreign investors and with some exception, provide with the same advantages of the pride of ownership as they do to native American investors. In accordance with these laws, foreign investors oblige to pay the same taxes during period of ownership and property disposition as American owners do. The exception from these laws is a Hawaii Real Property Tax known as HARPTA, which foreign investors must pay after the property disposition. Foreign investors have two options how to manage these investments. First one is to acquire investment and by certain circumstances relocate to the USA. There are few Federal immigrant and non-immigrant programs which allow foreign investors to relocate to the USA. Foreign investors who would like to invest in the business in Hawaii and apply for E-1, E-2, L-1 or EB - 5 visas or a Green Card, please visit our page where you can find more information about these programs. The second option is to purchase an investment in Hawaii and to manage it from the abroad or to acquire a second home and to use it as a vacation property. Foreign investors must remember that the real estate or business ownership in the USA doesn't provide an automatic possibility for the permanent living in the USA which determines by the American Immigration Law. For more information on this issue you should seek a legal advice of a licensed immigration attorney. Hawaii International Real Estate, LLC provides services related to investments in Hawaii real estate and businesses and we do not deal with the immigration law. We are very closely working with licensed immigration attorneys who provides a legal advice to our clients about best possible visa type options for foreign invertors. This site provides information for foreign buyers who are seeking for a second home in Hawaii or investment property in Hawaii and what taxes foreign buyers should expect to pay investing in Hawaii.
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FIRPTA or Foreign Investment in Real Property Tax Act Withholding
Withholding of Tax on Dispositions of United States Real Property Interests
The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA) income tax withholding. FIRPTA authorized the United States to tax foreign persons on dispositions of U.S. real property interests. A disposition means “disposition” for any purpose of the Internal Revenue Code. This includes but is not limited to a sale or exchange, liquidation, redemption, gift, transfers, etc. A U.S. real property interest includes sales of interests in parcels of real property as well as sales of shares in certain U.S. corporations that are considered U.S. real property holding corporations. Persons purchasing U.S. real property interests (transferee) from foreign persons, certain purchasers' agents, and settlement officers are required to withhold 10 percent of the amount realized (special rules for foreign corporations) Withholding is intended to ensure U.S. taxation of gains realized on disposition of such interests. The transferee/buyer is the withholding agent. If you are the transferee/buyer you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax.
The amount that must be withheld from the disposition of a U.S. real property interest can be adjusted pursuant to a withholding certificate issued by the IRS.
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A disposition includes the sale of any U.S. real property interests in the United States or U.S. Virgin Islands.
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Generally speaking, in reference to the disposition of a U.S. real property interest, the foreign person disposing of the US real property interest is referred to as the transferor.
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The purchaser of the U.S. real property interest is referred to as the transferee.
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Generally, the amount realized is the purchase/sales price of the U.S. real property interest but can also include any property received by the transferor and any liability relieved of by the transferor.
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Generally, the buyer/transferee must determine if the seller is a foreign person. If so, the buyer/transferee is responsible for the withholding taxes.
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The buyer/transfer may be held liable for the tax that should have been withheld on the purchase.
One of the most common exceptions to FIRPTA withholding is that the buyer/transferee is not required to withhold tax in a situation in which the buyer/transferee purchases real estate for use as his personal residence and the purchase price is not more than $300,000.
For additional information on the withholding rules that apply to corporations, trusts, estates, and REITs, refer to section 1445 of the Internal Revenue Code and the related regulations. For additional information on the withholding rules that apply to partnerships, refer to discussion under partnership withholding. Also consult IRS Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, section U.S. Real Property Interest.
Exceptions from FIRPTA Withholding
Generally you do not have to withhold in the following situations; however, notification requirements must be met:
You (the transferee) acquire the property for use as a home and the amount realized (generally sales price) is not more than $300,000. You or a member of your family must have definite plans to reside at the property for at least 50% of the number of days the property is used by any person during each of the first two 12-month periods following the date of transfer. When counting the number of days the property is used, do not count the days the property will be vacant.
The property disposed of (other than certain dispositions of nonpublicly traded interests) is an interest in a domestic corporation if any class of stock of the corporation is regularly traded on an established securities market. However, if the class of stock had been held by a foreign person who beneficially owned more than 5% of the fair market value of that class at any time during the previous 5-year period, then that interest is a U.S. real property interest if the corporation qualifies as a United States Real Property Holding Corporation (USRPHC), and you must withhold on any disposition.
The disposition is of an interest in a domestic corporation and that corporation furnishes you a certification stating, under penalties of perjury, that the interest is not a U.S. real property interest. Generally, the corporation can make this certification only if the corporation was not a USRPHC during the previous 5 years (or, if shorter, the period the interest was held by its present owner), or as of the date of disposition, the interest in the corporation is not a U.S. real property interest by reason of section 897(c)(1)(B) of the Internal Revenue Code. The certification must be dated not more than 30 days before the date of transfer.
The transferor gives you a certification stating, under penalties of perjury, that the transferor is not a foreign person and containing the transferor's name, U.S. taxpayer identification number, and home address (or office address, in the case of an entity).
You receive a withholding certificate from the Internal Revenue Service that excuses withholding. Refer to Withholding Certificates.
The transferor gives you written notice that no recognition of any gain or
loss on the transfer is required because of a nonrecognition provision in the
Internal Revenue Code or a provision in a U.S. tax treaty. You must file a copy
of the notice by the 20th day after the date of transfer with the:
Internal Revenue Service Center
P.O. Box 9941
M/S 6731
Ogden, UT
84409
The amount the transferor realizes on the transfer of a U.S. real property interest is zero.
The property is acquired by the United States, a U.S. state or possession, a political subdivision thereof, or the District of Columbia.
The grantor realizes an amount on the grant or lapse of an option to acquire a U.S. real property interest. However, you must withhold on the sale, exchange, or exercise of that option.
The disposition (other than certain dispositions of nonpublicly traded interests) is of publicly traded partnerships or trusts. However, if an interest in a publicly traded partnership or trust was owned by a foreign person with a greater than 5% interest at any time during the previous 5-year period, then that interest is a U.S. real property interest if the partnership or trust would otherwise qualify as a USRPHC if it were a corporation, and you must withhold on it.
Definitions of Terms and Procedures Unique to FIRPTA
Dispositions
The disposition of a U.S. real property interest by a foreign person (the transferor) is subject to income tax withholding (Section 1445). The transferee is the withholding agent. If you are the transferee, you must find out if the transferor is a foreign person. If the transferor is a foreign person and you fail to withhold, you may be held liable for the tax.
Normally the sale/purchase of real estate qualifies a disposition however many other transactions also qualify as dispositions (e.g. gifts, redemptions, capital contributions, etc.).
Withholding is required on certain distributions and other transactions by domestic or foreign corporations, partnerships, trusts, and estates.
Corporations
A foreign corporation that distributes a U.S. real property interest must withhold a tax equal to 35% of the gain it recognizes on the distribution to its shareholders. However, this withholding requirement does not apply if the foreign corporation has elected under Section 897(i) to be treated as a domestic corporation.
A domestic corporation must withhold a tax equal to 10% of the fair market value of the property distributed to a foreign person if:
The shareholder's interest in the corporation is a U.S. real property interest, and
The property distributed is either in redemption of stock or in liquidation of the corporation.
Distributions from a domestic corporation that is a U.S. Real Property Holding Corporation (USRPHC) are generally subject to NRA Withholding on Forms 1042/1042-S, as well as withholding under the U.S. real property interest provisions. This also applies to a corporation that was a USRPHC at any time during the shorter of the period during which the U.S. real property interest was held, or the 5-year period ending on the date of disposition. A USRPHC can satisfy both withholding provisions if it withholds under one of the following procedures.
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Apply NRA Withholding on Forms 1042/1042-S on the full amount of the distribution, whether or not any portion of the distribution represents a return of basis or capital gain. If a reduced tax rate applies under an income tax treaty, then the rate of withholding must not be less than 10%, unless the treaty specifies a lower rate for distributions from a USRPHC.
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Apply NRA Withholding on Forms 1042/1042-S to the portion of the distribution that the USRPHC estimates is a dividend. Then, withhold 10% on the remainder of the distribution (or on a smaller amount if a withholding certificate is obtained and the amount of the distribution that is a return of capital is established).
The same procedure must be used for all distributions made during the year. A different procedure may be used each year.
Partnerships
If a domestic partnership that is not publicly traded disposes of a U.S. real property interest at a gain, the gain is treated as effectively connected income and is subject to the rules explained under Partnership Withholding on Effectively Connected Income.
A publicly traded partnership that disposes of a U.S. real property interest must withhold tax on distributions to foreign partners, unless it elects to withhold based on effectively connected taxable income allocable to foreign partners as discussed under Publicly Traded Partnerships .
Trust and Estates
You are a Withholding Agent if you are a trustee, fiduciary, or executor of a trust or estate having one or more foreign beneficiaries. You must establish a U.S. real property interest account. You enter in the account all gains and losses realized during the taxable year of the trust or estate from dispositions of U.S. real property interests. You must withhold 35% on any distribution to a foreign beneficiary that is attributable to the balance in the real property interest account on the day of the distribution. A distribution from a trust or estate to a beneficiary (foreign or domestic) will be treated as attributable first to any balance in the U.S. real property interest account and then to other amounts.
A trust with more than 100 beneficiaries may elect to withhold from each distribution 35% of the amount attributable to the foreign beneficiary's proportionate share of the current balance of the trust's real property interest account. This election does not apply to publicly traded trusts or real estate investment trusts (REITs). For more information about this election, refer to section 1.1445-5(c) of the regulations.
Publicly traded trusts and REITs must withhold on distributions of U.S. real property interests to foreign persons. The withholding rate is 35%. For more information, including how to compute the amount subject to withholding, refer to section 1.1445-8 of the regulations.
Generally, any distribution from a qualified investment entity attributable to gain from the sale or exchange of a U.S. real property interest is treated as such gain by the nonresident alien individual or foreign corporation receiving the distribution. For tax years beginning after October 22, 2004, any distribution by a REIT on stock regularly traded on a securities market in the United States is not treated as gain from the sale or exchange of a U. S. real property interest if the shareholder did not own more than 5% of that stock at any time during the REIT's tax year. These distributions are included in the shareholder's gross income as a dividend from the REIT, not as long-term capital gain.
U.S. Real Property Interest
The term U.S. Real Property interest means an interest in real property (including an interest in a mine, well, or other natural deposit) located in the United States or the Virgin Islands, as well as certain personal property that is associated with the use of real property (such as farming machinery). It also means any interest, other than as a creditor, in any domestic corporation unless it is established that the corporation was at no time a U.S. real property holding corporation during the shorter of the period during which the interest was held, or the 5-year period ending on the date of disposition. If on the date of disposition, the corporation did not hold any U.S. real property interests, and all the interests held at any time during the shorter of the applicable periods were disposed of in transactions in which the full amount of any gain was recognized, then an interest in the corporation is not a U.S. real property interest.
After December 31, 2004, the sale of an interest in a domestically controlled qualified investment entity is not the sale of a U.S. real property interest. A qualified investment entity is any real estate investment trust (REIT) or any regulated investment company (RIC). The entity is domestically controlled if at all times during the testing period less than 50% in value of its stock was held, directly or indirectly, by foreign persons. The testing period is the shorter of (a) the 5-year period ending on the date of the disposition, or (b) the period during which the entity was in existence.
Foreign Person
A Foreign Person is a nonresident alien individual, foreign corporation that has not made an election under section 897(i) of the Internal Revenue Code to be treated as a domestic corporation, foreign partnership, foreign trust, or foreign estate. It does not include a resident alien individual.
Transferor
The term Transferor means any foreign person that disposes of a U.S. real property interest by sale, exchange, gift, or any other transfer. A transfer includes distributions to shareholders of a corporation, partners of a partnership, and beneficiaries of a trust or estate.
The owner of a disregarded entity is treated as the transferor of the property, not the entity.
Transferee
The term Transferee means any person, foreign or domestic, that acquires a U.S. real property interest by purchase, exchange, gift, or any other transfer.
Amount Realized
The Amount Realized by the transferor is the sum of:
The cash paid, or to be paid (principal only),
The fair market value of other property transferred, or to be transferred, and
The amount of any liability assumed by the transferee or to which the property is subject immediately before and after the transfer.U.S. Real Property Holding Corporation (USRPHC)
In general, a corporation is a U.S. real property holding corporation if the fair market value of the U.S. real property interests held by the corporation on any applicable determination date equals or exceeds 50 percent of the sum of the fair market values of its -
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U.S. real property interests,
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Interests in real property located outside the United States, and
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Certain business assets.
Refer to Treasury Regulation 1.897-2. United States real property holding corporations
More specific information about FIRPTA or Foreign Investment in Real Property Tax Act Withholding you can find here
Hawaii Real Property Assessment - Important Dates to Remember
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September 1 |
Deadline for filing dedication petitions (Forms available) |
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September 30 |
Deadline for filing exemption claims (Forms available) |
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September 30 |
Deadline for filing tax credit applications (Treasury Division) |
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October 1 |
Date of Valuation |
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October 31 |
Deadline for dedication approval/disapproval |
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December 15 |
Assessment notices mailed |
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January 15 |
Deadline for filing appeals (Forms available) |
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February 1 |
Certified assessment roll sent to City Council |
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June 15 |
Tax rates set by City Council |
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June 30 |
End of tax year |
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July 1 |
Beginning of tax year |
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July 20 |
First-half year bills mailed |
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August 20 |
First-half year payments due |
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January 20 |
Second-half year bills mailed |
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February 20 |
Second-half year payments due |
HARPTA or Hawaii Real Property Tax Act Withholding
Withholding of Tax on Dispositions of United States Real Property Interests
Description: Requires a nonresident buyer of real property located in Hawaii to furnish to the bureau of conveyances a Hawaii Real Property Tax Act (HARPTA) payment verification form issued from the department of taxation that certifies that the HARPTA withholding requirements were satisfied as a precondition to recording a change in title on the real property. Requires the seller to submit a certified tax clearance certificate as a condition to transferring real property title. (SD2)
The Senate S.B. NO 1106 S.D.2
Twenty-Fifth Legislature, 2009, State of Hawaii
A BILL FOR AN ACT
RELATING TO TAXATION
BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:
SECTION 1. The largest source of state revenues is from the payment of various taxes by residents and nonresidents. During these tough economic times it is especially important for the State to protect and improve upon the collection of its various taxes in order to provide widespread financial support to social programs, infrastructure projects, and public education. One area of tax collections that the State can improve upon is the withholding tax requirement under the Hawaii Real Property Tax Act. According to sales data acquired from the Honolulu Board of Realtors, it is estimated that the sales revenue generated from the transfer of single family homes, apartments, and condominiums across the State in 2008 was over $9,800,000,000. If two per cent of those sellers were nonresidents that were subject to the Hawaii Real Property Tax Act withholding requirements, then the State would have received over $9,800,000 in Hawaii Real Property Tax Act withholdings. If it is further assumed that ten per cent of the sales transactions that involved those nonresident sellers failed to comply with the Hawaii Real Property Tax Act withholding requirements in section 235-68, Hawaii Revised Statutes, then under that assumption the State had a shortfall in Hawaii Real Property Tax Act withholding tax revenues of over $980,000 for 2008. The legislature further finds that this analysis is based upon the 2008 calendar year, which experienced nearly a thirty per cent decline in the sales of single family homes, apartments, and condominiums from the prior year, according to the Honolulu Board of Realtors. Thus, a potential shortfall of Hawaii Real Property Tax Act withholding tax revenues by the State in any given year could easily exceed $1,300,000, this amount becomes far greater if there is a larger number of nonresident sellers of real property in Hawaii or a larger percentage of those nonresident seller transactions that do not comply with the Hawaii Real Property Tax Act withholding requirements. The purpose of this Act is to ensure that the Hawaii Real Property Tax Act withholding requirements are properly adhered to by requiring a tax payment verification form to be furnished to the bureau of conveyances as a precondition to recording any transfer in title of the real property in Hawaii. This Act will help to ensure that all Hawaii Real Property Tax Act withholding tax revenues are captured by the State and will also improve on capturing additional income tax revenues from the sale of real property in Hawaii by nonresidents who may otherwise not file a State income, general excise, or transient accommodation tax return.
SECTION 2. Section 235-68, Hawaii Revised Statutes, is amended to read as follows:
235-68 Withholding of tax on the disposition of real property by nonresident persons. (a) As used in this section:
Nonresident person means every person other than a resident person.
Property or real property has the meaning as the same term is defined in section 231-1.
Resident person means any:
(1) Individual included in the definition of resident in section 235-1;
(2) Corporation incorporated or granted a certificate of authority under chapter 414, 414D, or 415A;
(3) Partnership formed or registered under chapter 425 or 425E;
(4) Foreign partnership qualified to transact business pursuant to chapter 425 or 425E;
(5) Limited liability company formed under chapter 428 or any foreign limited liability company registered under chapter 428; provided that if a single member limited liability company has not elected to be taxed as a corporation, the single member limited liability company shall be disregarded for purposes of this section and this section shall be applied as if the sole member is the transferor;
(6) Limited liability partnership formed under chapter 425;
(7) Foreign limited liability partnership qualified to transact business under chapter 425;
(8) Trust included in the definition of resident trust in section 235-1; or
(9) Estate included in the definition of resident estate in section 235-1.
Transferee means any person, the State and the counties and their respective subdivisions, agencies, authorities, and boards, acquiring real property [which] that is located in Hawaii.
Transferor means any person disposing real property that is located in Hawaii.
(b) Unless otherwise provided in this section, every transferee shall deduct and withhold a tax equal to five per cent of the amount realized on the disposition of Hawaii real property. Every person required to withhold a tax under this section is made liable for the tax and is relieved of liability for or upon the claim or demand of any other person for the amount of any payments to the department made in accordance with this section.
(c) Every transferee required by this section to withhold tax under subsection (b) shall make a return of the amount withheld to the department of taxation not more than twenty days following the transfer date.
(d) No person shall be required to deduct and withhold any amount under subsection (b), if the transferor furnishes to the transferee an affidavit by the transferor stating the transferor's taxpayer identification number and:
(1) The transferor is a resident person; or
(2) That by reason of a nonrecognition provision of the Internal Revenue Code as operative under this chapter or the provisions of any United States treaty, the transferor is not required to recognize any gain or loss with respect to the transfer;
(3) A brief description of the transfer; and
(4) A brief summary of the law and facts supporting the claim that recognition of gain or loss is not required with respect to the transfer.
This subsection shall not apply if the transferee has actual knowledge that the affidavit referred to in this subsection is false.
(e) An application for a withholding certificate may be submitted by the transferor to the department setting forth:
(1) The name, address, and taxpayer identification number, if any, of the parties to the transaction and the location and general description of the real property to be transferred; and
(2) A calculation and written justification showing that the transferor will not realize any gain with respect to the transfer; or
(3) A calculation and written justification showing that there will be insufficient proceeds to pay the withholding required under subsection (b) after payment of all costs, including selling expenses and the amount of any mortgage or lien secured by the property.
Upon receipt of the application, the department shall determine whether the transferor has realized or will realize any gain with respect to the transfer, or whether there will be insufficient proceeds to pay the withholding. If the department is satisfied that no gain will be realized or that there will be insufficient proceeds to pay the withholding, it shall issue a withholding certificate stating the amount to be withheld, if any.
The submission of an application for a withholding certificate to the department does not relieve the transferee of its obligation to withhold or to make a return of the tax under subsections (b) and (c).
(f) No person shall be required to deduct and withhold any amount under subsection (b) if one or more individual transferors furnishes to the transferee an affidavit by the transferor stating the transferor's taxpayer identification number, that for the year preceding the date of the transfer the property has been used by the transferor as a principal residence, and that the amount realized for the property does not exceed $300,000.
(g) The department may enter into written agreements with persons who engage in more than one real property transaction in a calendar year or other persons to whom meeting the withholding requirements of this section are not practicable. The written agreements may allow the use of a withholding method other than that prescribed by this section or may waive the withholding requirement under this section.
(h) Unless otherwise provided in this section, every nonresident person that is a transferee under this section shall submit to the bureau of conveyances a certified Hawaii Real Property Tax Act payment verification form issued from the department verifying that the transferee properly made a return of the amount withheld to the department pursuant to the requirements set forth in this section. Submission of a certified Hawaii Real Property Tax Act payment verification form to the bureau of conveyances shall be a precondition to recording any transfer of title by a nonresident person that is a transferee under this section.
(i) Unless otherwise provided in this section, every nonresident person that is a transferor under this section shall obtain a certified tax clearance certificate from the department verifying that the transferor has filed all required returns and paid all required taxes, penalties, and interest. To comply with the requirements of this subsection, the nonresident transferor shall submit a tax clearance application to the department no later than fifteen days after the transfer date of the real property. Failure of the nonresident transferor to comply with the requirements of this subsection may subject the nonresident transferor to fines, penalties, and interest.
(j) The director of taxation shall prepare forms as may be necessary to satisfy the requirements of subsections (h) and (i). The director may also require a nonresident transferee or transferor under this section to furnish information to ascertain the person's compliance with the requirements of subsections (h) or (i), as applicable, and may adopt rules necessary to effectuate the purposes of this subsection pursuant to chapter 91.
SECTION 3. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.
SECTION 4. This Act shall take effect on January 1, 2010.
Hawaii State Conveyance Tax. Rate Effective July 1, 2009*
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Purchase Price |
Conveyance Tax if Purchaser is eligible for home exemption |
Conveyance Tax if Purchaser is not eligible for home exemption |
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$600,000 | $0.10 per $100 of Purchase Price | $0.15 per $100 of Purchase Price |
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$600,000 - $1,000,000 |
$0.20 per $100 of Purchase Price | $0.25 per $100 of Purchase Price |
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$1,000,000 - $2,000,000 | $0.30 per $100 of Purchase Price |
$0.40 per $100 of Purchase Price |
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$2,000,000 $4,000,000 |
$0.50 per $100 of Purchase Price |
$0.60 per $100 of Purchase Price |
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$4,000,000 - $6,000,000 | $0.70 per $100 of Purchase Price |
$0.85 per $100 of Purchase Price |
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$6,000,000 $10,000,000 |
$0.90 per $100 of Purchase Price |
$1.10 per $100 of Purchase Price |
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> 10,000,000 |
$1.00 per $100 of Purchase Price |
$1.25 per $100 of Purchase Price |
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* All amounts shown are subject to change | ||
Capital Gain Tax
Topic 409 - Capital Gains and Capital Losses
Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account. When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. If you received the asset as a gift or inheritance, refer to Topic 703 for information about your basis. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal–use property, such as your home or car, are not deductible.
Capital gains and capital losses are classified as long–term or short–term. If you hold the asset for more than one year before you dispose of it, your capital gain or capital loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
Capital gains and deductible capital losses are reported on Form 1040, Schedule D (PDF). If you have a net capital gain, that gain may be taxed at a lower tax rate than the ordinary income tax rates. The term net capital gain means the amount by which your net long–term capital gain for the year is more than your net short–term capital loss. Currently net capital gain is generally taxed at rates no higher than 15%, although, for 2008 through 2010, some or all net capital gain may be taxed at 0%, if it would otherwise be taxed at lower rates. There are three exceptions:
The taxable part of a gain from selling Section 1202 qualified small business stock is taxed at a maximum 28% rate.
Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate.
The part of any net capital gain from selling Section 1250 real property that is required to be recaptured in excess of straight-line depreciation is taxed at a maximum 25% rate. If you have a taxable capital gain, you may be required to make estimated tax payments. Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is the lessor of $3,000, ($1,500 if you are married filing separately) or your total net capital loss as shown on line 16 of the 1040 Schedule D, Capital Gains and Loses. If your net capital loss is more than this limit, you can carry the loss forward to later years. Use the Capital Loss Carryover Worksheet in Publication 550, to figure the amount carried forward.
Additional information on capital gains and capital losses is available in Publication 550, Investment Income
and Expenses, and Publication
544, Sales
and Other Dispositions of Assets. If you sell your main home, refer to
Topics 701 and 703, or to Publication 523, Selling Your
Home. Topic 701 - Sale of Your
Home
If you have a capital gain from the sale of your main home, you may qualify to exclude all or part of that gain from your income. Publication 523, Selling Your Home, provides rules and worksheets.
If you sold your home under a contract that provides for part or the entire selling price to be paid in a later year, you made an installment sale. Refer to Topic 705, Installment Sales, for more information.
In general, you are eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its sale. Refer to Publication 523 for the complete eligibility requirements as well as exceptions to the two year rule.
Report the sale of your main home only if you have a capital gain that is not excluded from your income. In most cases if you have a capital gain that is not excluded you must report it on Form 1040, Schedule D (PDF), Capital Gains and Losses.
If you were on qualified official extended duty in the Uniformed Services, the Foreign Service, or the intelligence community, you may suspend the five-year test period for up to 10 years. You are on qualified extended duty when, for more than 90 days or for an indefinite period, you are:
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At a duty station that is at least 50 miles from your main home, or
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Residing under government orders in government housing.
Basis is generally the amount of your investment in a property for tax purposes. Use your basis to figure depreciation, amortization, depletion, casualty losses, and any capital gain or capital loss on the sale, exchange or other disposition of the property.
The basis of property you buy is usually its cost. The cost is the amount you pay for it in cash, debt obligations, and other property or services. Cost includes sales tax and other expenses connected with the purchase. Your basis in some assets cannot be determined by cost. If you acquire property other than through a purchase, refer to Publication 551, Basis of Assets, for more information.
Before figuring capital gain or capital loss on a sale, exchange, or other disposition of property, or before figuring allowable depreciation, you must usually determine the adjusted basis of that property. Certain events that occur during your period of ownership may increase or decrease your basis, resulting in an adjusted basis. Increase your basis by items such as the cost of improvements that add to the value of the property, and decrease it by items such as depreciation allowable, and insurance reimbursements for casualty and theft losses.
For more information on basis and adjusted basis, refer to Publication 551.
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You can estimate your capital gain tax using this capital gait tax calculator |
Fiscal Year July 1, 2008 to June 30, 2009
|
County/Class |
Tax Rate* |
|
Honolulu County | |
|
Residential |
$3.29 |
|
Commercial |
$12.40 |
|
Industrial |
$12.40 |
|
Agricultural |
$5.70 |
|
Preservation |
$5.70 |
|
Public Service |
$0.00 |
|
Vacant Agricult |
$8.50 |
|
Maui County | |
|
Improved Residential | |
| Improvements |
$4.85 |
|
Land |
$4.85 |
|
Improvements |
$4.55 |
|
Land |
$4.55 |
|
Commercial | |
|
Improvements |
$6.25 |
|
Land |
$6.25 |
|
Industrial | |
|
Improvements |
$6.50 |
|
Land |
$6.50 |
|
Agricultural | |
|
Improvements |
$4.50 |
|
Land |
$4.50 |
|
Conservation | |
|
Improvements |
$4.75 |
|
Land | $4.75 |
|
Hotel and Resort | |
|
Improvements |
$8.20 |
|
Land |
$8.20 |
|
Unimproved Residential | |
|
Improvements |
$5.35 |
|
Land |
$5.35 |
|
Homeowner | |
|
Improvements |
$2.00 |
|
Land |
$2.00 |
|
Time Share | |
|
Improvements |
$14.00 |
|
Land |
$14.00 |
|
Hawaii County | |
|
Residential | |
|
Improvements |
$7.10 |
|
Land |
$8.10 |
|
Apartment | |
|
Improvements |
$8.10 |
|
Land |
$8.10 |
|
Commercial | |
|
Improvements |
$9.00 |
|
Land |
$9.00 |
|
Industrial | |
|
Improvements |
$9.00 |
|
Land |
$9.00 |
|
Agriculture or Native Forest | |
|
Improvements |
$6.35 |
|
Land |
$8.35 |
|
Conservation | |
|
Improvements |
$8.55 |
|
Land |
$8.55 |
|
Hotel and Resort | |
|
Improvements |
$9.00 |
|
Land |
$9.00 |
|
Homeowner | |
|
Improvements |
$5.55 |
|
Land |
$5.55 |
|
Affordable Rental Housing | |
|
Improvements |
$5.55 |
|
Land |
$5.55 |
|
Kauai County | |
|
Single Family Residential | |
|
Improvements |
$4.95 |
|
Land |
$3.95 |
|
Apartment | |
|
Improvements |
$7.90 |
|
Land |
$6.90 |
|
Commercial | |
|
Improvements |
$7.90 |
|
Land |
$6.90 |
|
Industrial | |
|
Improvements |
$7.90 |
|
Land |
$6.90 |
|
Agricultural | |
|
Improvements |
$4.95 |
|
Land |
$6.90 |
|
Conservation | |
|
Improvements |
$4.25 |
|
Land |
$6.90 |
|
Hotel and Resort | |
|
Improvements |
$7.90 |
|
Land |
$6.90 |
|
Homestead | |
|
Improvements |
$3.44 |
|
Land |
$4.00 |
|
Source: C&C of Honolulu | |
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Information about immigrant and nonimmigrant programs for foreign investors you can find here |
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Recent International Real Estate News you can find here |
A look at foreign real estate investment in the U.S.
We’ve all heard enough about the troubled real estate investment markets in many parts of the United States and how sub-prime lending is being offered up as the sacrificial lamb to foot the blame. I want to focus on an interesting dynamic this has created for foreign investors and what we can learn from them.
As times are tight here in the U.S. and our dollar’s value is near it’s all time low, many foreign investors and investment companies are seeking opportunities to pick up some bargains in real estate. They are flush with cash and are finding no shortage of deals to be had in many areas of our country. They are buying distressed and cash flowing properties from coast-to-coast with little worry about where our present day economic cycle resides. They know how capitalism works and that “buy low, sell high,” is a proven recipe for success.
I receive several calls per week from both domestic and foreign real estate investors wanting me to help them finance and purchase income producing properties in my local market. I typically notice a big difference in philosophy between the two and I think it’s very telling. The foreign investors seem to be more willing and able to put larger down payments thus borrowing less and insuring the positive cash flows required to sustain them.
Conversely, I see many domestic “investors” seeking maximum financing and being comfortable with simply “breaking even” when it comes to cash-flow. They cite the many sources of “cheap” money available which gives them the ability to leverage more properties. My comment to them is why are you satisfied with breaking even? If you are not making money and in fact, losing money by the time the incidentals are factored in, then you are simply wasting your time. You are not treating your investing endeavor as a business, but more like a hobby.
My advice is to save enough to put a sizable down payment, be very selective about the properties you buy and be sure you will make money in real estate when considering an investment opportunity. After all, we are already a few steps behind the foreign investors who’s money is worth more than ours.
My question for our readers though is should we be worried about the influx of foreigners acquiring large chunks of our “American pie”?
FOREIGN INVESTMENT
Governments Ease Foreign Ownership Restrictions to Stimulate Investment
With global markets down, governments worldwide are looking at ways to attract investors resulting in changes in foreign and nonresident ownership laws designed to stimulate in-bound investment. Caribbean nations, China, and Australia have all recently loosened restrictions and the Philippines is discussing it. India and Turkey made significant changes in recent years with the same objective. Emerging markets are most likely to examine their laws as most western markets have had few, if any, restrictions on foreign ownership. Read more in a recent Wall Street Journal article. Information on foreign ownership is available for 30+ countries in the Business Practices section at WorldProperties.com.
To Gift or Not to Gift
International business often requires an offering or exchange of gifts...but not always, and the appropriate quality of the gift can vary greatly. Having some basic understanding of the business gift guidelines for the country in which your engaged in business can help make your transaction a success. The International Business Center offers some gift giving guidance.
Information for Globalists
Did you know, that today, more than 20 African countries are democracies, up from just three in the 1980s? This from the Fact of the Day at TheGlobalist.com. The site offers a wide range of information, news, tidbits and more to help international real estate specialists stay abreast of global issues. Site information is organized by numerous globalization topics, including Development, Economy, Finance, and Culture.
Honolulu City Council raises property tax, bus fares, car fees
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The property tax rate for homes would go to $3.42 per $1,000 valuation, up from $3.29. A family owning and living in a house valued at $600,000 would pay $1,717 next year, up from the $1,611 it paid this year, according to the Department of Budget and Fiscal Services.....
The main point of contention yesterday was clearly the property tax rates.
Hannemann, upset that the council approved a residential property tax rate hike that does not include a tax credit to help soften the blow for owner-occupants, did not rule out a veto.
He said he will take until June 25, the most time allowed by law, to consider whether to support the budget package.
Currently, homeowners are paying $3.29 per $1,000 with a $100 tax credit. Budget chairman Nestor Garcia proposed a plan that would have raised the residential property tax rate to $3.59 per $1,000 valuation with a $150 tax credit, a plan supported by Hannemann.
But that failed to muster five votes. Instead, Councilman Ikaika Anderson's proposal for a $3.42 rate with no tax credit was approved on a 7-1 vote.
We should never ask our citizens to shell out more than is necessary of their hard-earned money, Anderson said.
Hannemann, at a press conference after the vote, disputed Anderson's suggestion that his plan would be more beneficial for owner-occupants.
A tax credit, Hannemann said, was needed to provide some relief to homeowners.
This year, when we needed it most, they did not include it in their final package, the mayor said. "This means that most homeowners will pay more than they would have under the tax structure that we had proposed.
Hannemann and Budget Director Rix Maurer showed charts explaining how the Anderson plan would be more expensive for those owning homes valued at $200,000 and $600,000 and less expensive for those with $1 million or $2 million houses.
Anderson, earlier in the day, said there is no correlation between income and home values. Many constituents in his district live in homes valued at more than $1 million but are retired and have limited incomes, he said.
Council members had initially proposed hiking the fees for alarm permits issued to homeowners who have security alarms. But after testimony from the head of a major security alarm company, the council voted to kill that increase.
The council yesterday also approved a $1.7 billion capital budget for the next year that includes $917 million to start construction of the planned elevated commuter rail line from East Kapolei to Ala Moana.
The city still needs added council approval before it can issue nearly $1 billion in rail-related bonds to help finance train construction.
The city intends to start construction on the $5.4 billion, 20-mile rail in December, pending federal approval. The project is expected to be paid for via a general excise tax surcharge and a federal grant.
Visa-waiver program expected to bring more South Koreans to Hawaii
Foreign real estate investors expect to see a U.S. market recovery by end of 2Q 2010, according to a new survey from the Association of Foreign Investors in Real Estate (AFIRE). Completed in May, this is the first mid-year survey conducted by AFIRE. Respondents projected their investments for the remainder of 2009 will substantially out-strip investments completed year-to-date (YTD). On the debt side, respondents expect to invest three times more than current investment levels YTD; equity investors expect they will place seven times more than current YTD investments. Overall, 75% of the survey respondents had not yet invested in 2009; however, more than two-thirds plan to invest some debt or equity in U.S. real estate before year-end. Survey respondents continue to be optimistic in their investment projections; 31% said they were more optimistic than at the beginning of the year; 16% were more pessimistic; and 53% felt about the same. AFIRE members projected the office sector will lead the recovery, followed by multi-family and industrial sectors. This represents a shift in investor perception from the January Annual Survey in which investors expressed an interest for multi-family over office buildings for their real estate investment dollars.
Visa-waiver program expected to bring more South Koreans to Hawaii
By David Briscoe, Associated Press Writer
HONOLULU — Hawaii tourism liaison Marsha Wienert says the South Korean boom is about to begin.
Tourists from South Korea can start arriving in the U.S. under the new visa-waiver program starting Nov. 17, state and federal officials announced Friday. The date is about two months earlier than expected.
Wienert predicted the number of tourists that come from South Korea to Hawaii will double to 80,000 in the first year of the program and double again in 2010 to 160,000.
At the peak prior to the 1990s Asian economic collapse, South Korea sent up to 122,000 tourists a year to Hawaii. Read More
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