Homeowners who rent out parts of their homes for six months or longer would be eligible for a tax break under a bill approved by the Hawaii County Council.

Bill 175, which the council voted for on first reading on Wednesday, would require residential properties that are rented for six months or longer to be classified as “owner-occupied” in the county’s tax classification and thus enjoy the tax benefits of that classification.

Only primary residences are eligible for the tax classification. Beneficiaries of this classification receive a tax exemption of at least $50,000, or more if the owner is at least 60 years old. However, this exemption cannot be applied to more than one residence per taxpayer.

The classification also prevents the assessed value of the beneficiaries’ property from increasing by more than 3% per year and allows them to have a low tax rate. For the 2025 tax year, that rate is $5.95 per $1,000 of assessed value.

The bill passed Wednesday simply adds a short clause to the county code that says a rental property will be eligible for classification as long as the rental period is not less than six months. Because the definition of a primary residence is not changed, owners of a long-term rental property must continue to live in it to qualify for homeowner classification.

The bill also replaces the phrase “husband and wife” with “married persons”.

Hawaii County Property Tax Administrator Lisa Miura told the council that after several discussions of the measure, she was pleased with the final version and was ready to implement the new classification rules once the law takes effect on Jan. 1.

“As long as it is a long-term rental, they are eligible for the loan,” Miura said.

Jenn Kagiwada, Hilo City Councilwoman and co-sponsor of the bill, said the measure is intended to provide incentives to provide long-term housing to Hawaii residents rather than offering short-term rentals to visitors.

“Currently, homeowners who rent out backyard cottages or portions of their home are technically not eligible for the county’s homeowner exemption unless they participate in the affordable rental tax bracket,” Jonathan Helton of the Grassroot Institute of Hawaii wrote in testimony to the council. “We are not aware of any homeowner who has lost their exemption on the grounds that they rented out part of their property, but island homeowners should not have to worry about that happening to them. If it did happen, the impact would be a doubling or tripling of their tax bill, which would amount to thousands of dollars.”

“With so many people aging in place and finding space in their homes to offer to long-term renters, there have been obstacles to making this happen,” wrote Jennifer Wilkinson. “The biggest obstacle is the loss of homeowner tax classification… which quickly makes renting prohibitive for older people on fixed incomes.”

The council voted unanimously to pass the bill on first reading. It must pass the bill again on second reading at a later meeting before it is sent to the mayor for his signature.

Email Michael Brestovansky at [email protected].