Selling Rental House in Hawaii

[Bob]

If I, a resident of California, sell a rental house I own in Hawaii, what
are the tax implications? There will be gains (even in this real estate
market) and recaptured depreciation. Obviously there are federal tax
obligations. But will I also owe taxes both the the states of Hawaii and
California?

 

[Ira Smilovitz]

If I, a resident of California, sell a rental house I own in Hawaii, what
are the tax implications? There will be gains (even in this real estate
market) and recaptured depreciation. Obviously there are federal tax
obligations. But will I also owe taxes both the the states of Hawaii and
California?

Yes, you will owe tax to both states. However, one will give you a credit
for some or all of the tax paid to the other. In most cases, you pay the
nonresident state and take the credit on your resident state return, but I
know that California has some reverse agreements so you'll have to look at
both state's instructions carefully.

Ira Smilovitz

 

[Taylor]

If I, a resident of California, sell a rental house I own in Hawaii, what
are the tax implications? There will be gains (even in this real estate
market) and recaptured depreciation. Obviously there are federal tax
obligations. But will I also owe taxes both the the states of Hawaii and
California?

It's my understanding you only pay state tax in the state in which you are a
resident. However, you pay tax on worldwide income.

You can only be a resident in one state at a time. Since you are a resident
of California, you must pay California state income tax on the sale of the
Hawaii property.

 

[Ira Smilovitz]

It's my understanding you only pay state tax in the state in which you are
a resident. However, you pay tax on worldwide income.

You can only be a resident in one state at a time. Since you are a
resident of California, you must pay California state income tax on the
sale of the Hawaii property.

Your understanding is wrong. Not only do you pay state tax in every state
where you receive income (assuming that state has a personal income tax),
you can also be a resident of more than one state simultaneously. Residents
are taxed on all income world-wide, non-residents are taxed on income
sourced to that state. Credits are usually, but not always, given to reduce
the amount of doubly taxed income.

Ira Smilovitz

 

[scott s.]

It's my understanding you only pay state tax in the state in which
you are a resident. However, you pay tax on worldwide income.

You can only be a resident in one state at a time. Since you are a
resident of California, you must pay California state income tax on
the sale of the Hawaii property.

I think you will find that a non-resident selling real estate situate in
the State of Hawaii is subject to a 5% witholding at time of closing.
See form N-288. Actual tax liability is figured on the annual non-res
individual tax return, N-15.
http://www.state.hi.us/tax/2007/n288.pdf

scott s.
...

 

[Mark Bole]

scott s. wrote:
[...]

If I, a resident of California, sell a rental house I own in
Hawaii, what are the tax implications? [...]

I think you will find that a non-resident selling real estate situate in
the State of Hawaii is subject to a 5% witholding at time of closing.
See form N-288. Actual tax liability is figured on the annual non-res
individual tax return, N-15.

Five percent withholding of what? Sales price? Net taxable profit? Any
exceptions?

If anyone knows, I'm curious whether Hawaii will ask, based on the Form
N-15, where is the 4% excise tax on monthly rents you should have been
collecting and remitting all this time? (Hawaii has an excise tax in
lieu of sales tax, and it includes residential rents).

My question assumes that you have not actually been collecting and
remitting it, and also that you are most likely a landlord since you are
selling residential property as a non-resident (which is all the
information the state has to go on).

-Mark Bole

 

[Katie]

If I, a resident of California, sell a rental house I own in Hawaii, what
are the tax implications?  There will be gains (even in this real estate
market) and recaptured depreciation.  Obviously there are federal tax
obligations.  But will I also owe taxes both the the states of Hawaii and
California?

As others have observed, as a California resident you will pay
California tax on the gain on the sale of the property; you will also
pay tax on the gain to Hawaii, because it is Hawaii source income.
California will give you credit for the tax you pay to Hawaii on the
gain, limited to the proportion of your California tax liability that
relates to that income. The credit is calculated on Form 540,
Schedule S.

Hawaii requires the purchaser to withhold 5% of the "total amount
realized from the sale." The amount withheld will be credited against
the tax due on your Hawaii nonresident income tax return. There are
some conditions under which withholding may be reduced or waived. See
Hawaii Tax Information Release 2002-2, http://hawaii.gov/tax/tir/tir02-02.pdf.

Katie in San Diego

 

[scott s.]

Five percent withholding of what? Sales price? Net taxable profit?
Any exceptions?

Katie provided the link to that, separately.

If anyone knows, I'm curious whether Hawaii will ask, based on the
Form N-15, where is the 4% excise tax on monthly rents you should
have been collecting and remitting all this time? (Hawaii has an
excise tax in lieu of sales tax, and it includes residential rents).

My question assumes that you have not actually been collecting and
remitting it, and also that you are most likely a landlord since you
are selling residential property as a non-resident (which is all the
information the state has to go on).

The resident return (N-11/N-12) has a line for your GET Id# and
gross income for Fed sked E amounts (among others). From time to time
PR releases end up in the paper to the effect that HI DoTax is going
to check for GET failure to pay. I believe the law requires a
non-resident to have a property manager in the State of Hawaii, at
least for residential rentals, and in my personal experience, the
property manager is going to pay the GET out of owner funds, prior to
providing any net to the property owner.

scott s.
...