RELATING TO TAXATION.

HB1261

HOUSE OF REPRESENTATIVES

H.B. NO.

1261

THIRTY-THIRD LEGISLATURE, 2025

STATE OF HAWAII

A BILL FOR AN ACT

relating
to taxation
.

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

PART I

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SECTION 1.
�
The legislature finds that the high cost of
housing in Hawaii places an undue burden on renters and contributes to economic
inequity.
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The legislature further finds
that incentivizing landlords to offer below-market rental rates can increase
the availability of affordable housing.
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Conversely,
discouraging excessive rents through tax policy can help stabilize rental
markets.

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The purpose of this Act is to:

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(1)
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Establish a tax
credit for landlords who charge below-market rent; and

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(2)
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Impose an above-market
rent tax on landowners who charge above-market rent.

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SECTION 2.
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Chapter 235, Hawaii Revised Statutes, is
amended by adding a new section to be appropriately designated and to read as
follows:

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"
�235-
�
Below-market
rent tax credit.
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(a)
�

There shall be allowed to each qualified taxpayer subject to the taxes
imposed by this chapter a tax credit that shall be deductible from the taxpayer's
net income tax liability, if any, imposed by this chapter for the taxable year
in which the credit is properly claimed.

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(b)
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The
tax credit shall be equal to ten per cent of the annual
gross proceeds
or gross income received or derived from the leasing of a dwelling unit owned
by the qualified taxpayer.

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(c)
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To
qualify for the tax credit, the qualified taxpayer shall submit to the
department of taxation:

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(1)
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Proof of the rental
agreement, including the amount of rent charged;

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(2)
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Certification
from the Hawaii housing finance and development corporation that the rent charged
for the dwelling unit is at or below eighty per cent of the median market rent;
and

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(3)
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Any other
documentation required by the department.

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(d)
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If the tax credit exceeds the
qualified
taxpayer's net income tax
liability, the excess of the credit over liability may be used as a credit
against the taxpayer's net income tax liability in subsequent years until
exhausted.
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All claims for the tax credit
under this section, including amended claims, shall be filed on or before the
end of the twelfth month following the close of the taxable year for which the
credits may be claimed.
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Failure to
comply with the foregoing provision shall constitute a waiver of the right to
claim the credit.

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(e)
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The director of taxation:

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(1)
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Shall prepare
forms as may be necessary to claim a credit under this section;

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(2)
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May require
proof of the claim for the tax credit; and

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(3)
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May adopt rules
pursuant to chapter 91 to effectuate the purposes of this section.

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(f)
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As used in this section:

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"Dwelling unit" has the
same meaning as in section 521-8.

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"Qualified taxpayer"
means a taxpayer
who is a landlord and who
leases a dwelling unit at a rental rate at or below eighty per cent of the
median market rent for a comparable dwelling unit in the same geographic area,
as determined by the Hawaii housing finance and development corporation
annually pursuant to section 201H- .
"

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SECTION 3.
�
Chapter 237, Hawaii Revised Statutes, is
amended by adding a new section to be appropriately designated and to read as
follows:

����
"
�237-
�
Above-market
rent tax.
�
(a)
�

In addition to the tax assessed under section 237-16.5, there is hereby
levied, and shall be assessed and collected annually, an additional privilege tax
on any landlord who leases a dwelling unit at a rate at or above one hundred
twenty per cent of the median market rent for a comparable dwelling unit in the
same geographic area, as determined by the Hawaii housing finance and development
corporation annually pursuant to section 201H- .

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(b)
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The tax under this section shall be calculated as follows:

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(1)
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Five per cent
of the gross proceeds or gross income received or derived from the leasing of dwelling
units at or above one hundred twenty per cent of the median market rent; and

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(2)
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For every ten
per cent above one hundred twenty per cent of the median market rent, an
additional one per cent of the gross annual rental income received or derived
from
the leasing of dwelling units
at
or above one hundred twenty per cent of the median market rent.

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(c)
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The director shall adopt rules pursuant to
chapter 91 to effectuate this section, including provisions for enforcement and
penalties for failure to comply.

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(d)
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As used in this section, dwelling unit"
has the same meaning as in section 521-8.
"

PART II

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SECTION 4.
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Chapter 201H, Hawaii Revised Statutes, is
amended by adding a new section to part I to be appropriately designated and to
read as follows:

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"
�201H-
�
Median market rent; determination; below-market tax credit; above-market
rent tax.
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(a) The corporation shall determine the
median market rent for dwelling units by geographic area annually using the
most recent available data, including data from the United States Department of
Housing and Urban Development and other reliable sources, to determine the below-market
tax credit and above-market rent tax, respectively, pursuant to sections 235-
and 237- .

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(b)
�
As used in this section, "dwelling
unit" has the same meaning as in section 521-8.
"

PART III

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SECTION 5.
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If any provision of this Act, or the
application thereof to any person or circumstance, is held invalid, the
invalidity does not affect other provisions or applications of the Act that can
be given effect without the invalid provision or application, and to this end
the provisions of this Act are severable.

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SECTION 6.
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This Act shall take effect upon its approval;
provided that section 2 shall apply to taxable years beginning after December
31, 2024.

INTRODUCED BY:

_____________________________

Report Title:

Below-market
Rent Tax Credit; Above-market Rent Tax; Department of Taxation; Hawaii Housing
Finance and Development Corporation

Description:

Establishes a tax credit for landlords who charge
below-market rent and assesses an additional privilege tax on landowners who
charge above-market rent, under certain conditions.
�
Requires the Hawaii Housing Finance and
Development Corporation to determine median market rent for rental units by
geographic area for the purposes of the below-market rent tax credit and above-market
rent tax.

The summary description
of legislation appearing on this page is for informational purposes only and is
not legislation or evidence of legislative intent.