Historic homes keep status after sale
: There is a large property in Manoa on the state's register of historic homes, but the owners pay only $494 in property taxes because the house and land are 94 percent exempt from taxes. The house is now being sold for several million dollars. Can they sell a historic home for all that money after paying so little in property taxes? Or do the owners, when they want to sell a home like this, have to remove the exemption, notify the proper authorities and pay the property taxes that would have been due from the time of the historic designation to the present?
Answer: There is no restriction as to how much the owner can sell a home that has qualified for a historic residential real property tax exemption in Honolulu.
But the new owner would have to agree to the restrictions imposed with the exemption.
With the exemption, property owners may pay as little as $100 a year in property taxes, as set forth in Section 8-10.22 of the Revised Ordinances of Honolulu.
However, the exemption locks in the owner to restrictions for a minimum of 10 years. The exemption is automatically renewable indefinitely. Either the owner or city finance director may cancel the exemption, but only with five years' notice AFTER the fifth year.
If the owner fails to observe the restrictions, the exemption will be canceled, and the owner would be responsible basically for paying the property taxes that had been saved -- the difference between the amount paid and the amount that would have been due without the exemption -- plus any penalty and interest.
Norman Yoshida, a valuation analyst with the city's Real Property Assessment Division, explained who may qualify for an exemption and how it works.
A property owner must first have approval from the state Department of Land and Natural Resources' State Historic Preservation Division to have a home placed on the Hawaii Register of Historic Places.
With that designation, the owner then "can file for a historic residential dedication with the real property office," Yoshida said.
"The dedication is for the property, not the owner," Yoshida explained. "So when the person sells the property, the property will still be subject to that dedication."
While there is no doubt there are tax breaks, the trade-off is that the homeowner is then restricted in what can be done to the property. For example, any type of renovation must be in line with the historic nature of the structure, Yoshida said.
In most cases an entire property would be designated historical. If so, the tax would be the minimum $100 a year. But there could be circumstances under which a portion of the property would not fall under the historic designation and hence be taxable, Yoshida said.
The intent of the law was to preserve Hawaii's historic homes.
Manoa, being one of the older neighborhoods, has many properties getting the historic designation, Yoshida said.
While there are many expensive homes on the register, there also are many homes in Hawaii that are of historic interest but not necessarily million-dollar structures. Among them are sugar plantation homes in Ewa, Yoshida noted.
For more information on what it takes to have a home placed on the state register, call the State Historic Preservation Office at 587-0047.
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