Hawaii House Bill HB289

Hawaii 2022 Regular Session

• Introduced: 1/25/21
• Refer: 1/27/21

Caption

Relating To Leasehold Conversion.

Impact

The enactment of HB289 is projected to have a significant impact on real estate transactions within Hawaii. By offering a full exemption on capital gains for the specified sales, the bill seeks to encourage more individuals to convert leasehold interests into fee simple ownership, potentially increasing property values and homeowner equity. Proponents of this bill argue that it will stimulate the local economy by making it more attractive for residents to purchase their leasehold properties, thus fostering a stronger real estate market in the state.

Summary

House Bill 289 proposes an amendment to the Hawaii Revised Statutes that specifically addresses the taxation of gains realized from the sale of leasehold interests. The bill stipulates that one hundred percent of the capital gains accrued from the sale of a leased fee interest in certain residential projects—namely condominium projects, cooperative projects, or planned unit developments—will be exempt from state taxation. This exemption is applicable to transactions involving the sale of these interests to the appropriate associations of apartment owners or the respective cooperative housing corporations. By altering the existing tax framework, HB289 aims to provide financial relief to property owners engaged in these types of transactions.

Contention

However, the bill has not been without controversy. Detractors express concern that the tax exemption could disproportionately favor wealthier property owners at the potential cost of reduced state revenue during a critical time for public funding. Critics also argue that this legislation may exacerbate the already significant disparities in property ownership within the state. The debate centers on whether the benefits of incentivizing conversions to fee simple ownership outweigh the potential downsides of the lost tax revenue and the benefits extending solely to a specific demographic of property owners. The bill is set to expire at the end of 2028 unless further action is taken to extend or revise its provisions.