Act 10 provides a new nonrefundable residential construction and remodeling income tax credit for four percent of the construction or renovation costs incurred before July 1, 2002, up to a maximum of $250,000 in the aggregate for each unit; and amends the existing hotel construction and remodeling income tax credit for qualified hotel facilities.

Residential construction and remodeling tax credit

This new nonrefundable four percent credit is applicable to:

• A "taxpayer" ¹
• Who incurs "construction or remodeling costs" ² up to $250,000 per unit before July 1, 2002
• For residential real property ³
• In taxable years beginning after December 31, 2000, but not to taxable years beginning after December 31, 2003. ⁴

The credit must be claimed by the taxpayer on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed.  A taxpayer claiming the credit may reduce the basis of property by the amount of the credit allowable or treat the credit as taxable income.

Hotel construction and remodeling tax credit. ⁵

An income tax credit is available for "construction or renovation costs" ⁶ for a "qualified hotel facility" ⁷ of a taxpayer subject to the net income tax under chapter 235, HRS, and the transient accommodations tax under chapter 237D, HRS, including an association of apartment owners or timeshare association.  The credit must be claimed on or before the end of the twelfth month following the close of the taxable year for which the credit may be claimed.  A taxpayer claiming the credit may reduce the basis of property by the amount of the credit allowable or treat the credit as taxable income.

Act 10 temporarily changes the credit from a refundable four percent credit to a nonrefundable ten percent credit for costs incurred on or after November 2, 2001 through June 30, 2003.  These changes to the construction and remodeling income credit will be repealed on June 30, 2003.  The credit will then revert to the original four percent refundable credit and continue to be available in subsequent years, but not for taxable years beginning after December 31, 2005.

The Department will be revising and preparing new forms to claim these credits. Current forms and other tax information are available at the Department's website at:   www.hawaii.gov/tax.  On Oahu, forms may be ordered by calling the Department's Forms Request Line at:  587-7572.  Persons who are not calling from Oahu, may call:  1-800-222-7572 (toll-free) to receive forms by mail or by fax.
 
 

/s/
MARIE Y. OKAMURA
Director of Taxation

HRS Sections Explained:  HRS Sections 235-__; 235-110.4.

1. While this term is undefined in Act 10, the Department will interpret "taxpayer" to mean a developer or owner of residential real property.
2. "Construction or remodeling cost" means "any costs incurred after December 31, 2000, for plans, design, construction, and equipment related to new construction, alterations, or modifications to residential real property."  (Emphasis added).  The Department  intends to issue further guidance on both this credit and the hotel construction and remodeling credit.  Pending the issuance of that guidance, Tax Information Release No. 2000-2 clarifies that capital expenses generally qualify for the hotel construction and remodeling credit while repairs do not qualify for the credit.
3. Costs incurred to construct or renovate commercial property, therefore, will not qualify for the credit.  Costs for infrastructure will not qualify for the credit because these are not costs to construct or renovate the unit.
4. "Construction or remodeling cost" is defined as "any costs incurred after December 31, 2000..."  Subsection (e) in section 1 of Act 10 states that "[t]he tax credit allowed under this section shall be available for taxable years beginning after December 31, 2000, and shall not be available for taxable years beginning after December 31, 2003."
5. Act 195, Session Laws of Hawaii (SLH) 2000, which is codified in section 235-110.4, Hawaii Revised Statutes (HRS), provides a credit similar to the hotel remodeling tax credit (Act 108, SLH 1997).   Act 108 was enacted to provide a tax credit aimed at visitor accommodation remodeling and upgrades but was available only for the 1997 and 1998 tax years.  The original credit in Act 108 also was capped at an amount equal to ten per cent of the transient accommodations taxes paid by the qualified hotel facility.  The current credit in section 235-110.4, HRS, does not contain a cap and was expanded to include new construction.
6. Any costs incurred after December 31, 1998, for plans, design, construction, and equipment related to new construction, alterations, or modifications to a qualified hotel facility including infrastructure with wiring to provide guests with Internet access.
7. A hotel/hotel-condo as defined in section 486K-1, HRS, including a  time share facility or project.

RELATED INFORMATION:

VIEW AN ON-LINE COPY OF THE ACT (SB 8, SD2) ON THE CAPITOL WEBSITE
For official copies of acts, please contact:
Office of the Lieutenant Governor, State Capitol, 5th Floor, Honolulu 96813.
Phone: 586-0255, Monday - Friday, 7:45 am - 4:30 pm