Hawaii Moves Toward New Luxury Property Levies

The Aloha State is reconsidering its tax relationship with the ultra-wealthy.

With new legislative proposals targeting properties valued over $2 million and $4 million, the cost of holding a slice of Hawaiian paradise may be about to rise.

For decades, Hawaii has offered more than just breath-taking sunsets and world-class surfing, but it has provided one of the lowest effective property tax rates in the United States. However, recent legislative movements suggest that the tide is turning for luxury second-home owners and real estate investors.

About Hawaii's new Bill 128

On the Big Island, the Hawaii County Council recently passed the first reading of Bill 128. This ambitious measure aims to introduce a "Tier 3" tax bracket specifically for residential properties valued at more than $4 million that do not qualify for a home exemption (typically non-owner-occupied second homes and investments).

Currently, the Big Island operates a two-tier system:

- Tier 1: Properties under $2 million.
- Tier 2: Properties over $2 million (taxed at $13.60 per $1,000 of value).
- The proposed Tier 3 would carve out a new category for the $4M+ market, potentially impacting nearly 850 high-value estates primarily located in the prestigious West Hawaii corridors. While the exact rates for this new tier will be finalized during the 2026 budget discussions this April, the message is clear: the state is looking to its most valuable assets to bolster public funds for housing and infrastructure.

The "Mansion Tax" expansion

Beyond the Big Island, state-wide discussions are heating up regarding the Conveyance Tax—often referred to as a "mansion tax." House Bill 2049 proposes a significant hike on the sale of homes valued at $2 million or more.

While the bill actually seeks to reduce taxes for the majority of local residents buying homes under the $2 million mark, it targets high-end transactions to generate an estimated $172 million annually. These funds are earmarked for the Department of Hawaiian Home Lands and various affordable housing initiatives.

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