SB 2451: Department of Budget and Finance; Department of Taxation; Home Mortgage Interest Deduction; Income Tax; Reports

A BILL FOR AN ACT

RELATING TO TAXATION.

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

     SECTION 1.  The purpose of this Act is to eliminate the home mortgage interest deduction for certain second homes under Hawaii income tax law.

     SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is amended by amending subsection (j) to read as follows:

     "(j)  Section 163 (with respect to interest) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that the following provisions shall not be operative for the purposes of this chapter:

     (1)  Section 163(d)(4)(B) (defining net investment income to exclude dividends);

     (2)  Section 163(e)(5)(F) (suspension of applicable high‑yield discount obligation (AHYDO) rules);

     (3)  Section 163(h)(3)(F) (limiting mortgage interest); [and]

     (4)  Section 163(h)(4)(A)(i)(II) (definition of qualified residence for home mortgage interest deduction); provided that the residence is not utilized as a primary residence by the owner or a long-term tenant;

     (5)  Section 163(h)(4)(A)(ii)(II) (treatment of home mortgage interest deduction for married individuals filing separately); provided that the residence is not utilized as a primary residence by the owner or a long-term tenant; and

    [(4)] (6)  Section 163(i)(1) as it applies to debt instruments issued after January 1, 2010 (defining AHYDO)."

     SECTION 3.  The department of budget and finance, in consultation with the department of taxation, shall submit a report on the administration of this Act to the legislature no later than twenty days prior to the convening of the regular sessions of 2027, 2028, 2029, 2030, and 2031.  The reports shall include the following:

     (1)  The number of second home mortgage interest deductions claimed on federal tax returns by Hawaii taxpayers;

     (2)  The number of state residents and non-residents claiming second home mortgage interest deductions;

     (3)  The number of homeowners claiming the second home mortgage interest deduction;

     (4)  The number of second homes that are not used as primary residences;

     (5)  The geographic distribution of the second homes; and

     (6)  Any other information the department of taxation deems pertinent.

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act shall take effect on July 1, 2050; provided that it shall apply to taxable years beginning after December 31, 2025.

Report Title:

Department of Budget and Finance; Department of Taxation; Home Mortgage Interest Deduction; Income Tax; Reports

Description:

Eliminates the home mortgage interest deduction for second homes not used as a primary residence under Hawaii income tax law.  Requires reports to the Legislature.  Effective 7/1/2050.  (SD1)

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

A BILL FOR AN ACT

relating to taxation.

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

     SECTION 1.  The purpose of this Act is to eliminate the home mortgage interest deduction for second homes under Hawaii income tax law.

     SECTION 2.  Section 235-2.4, Hawaii Revised Statutes, is amended by amending subsection (j) to read as follows:

     "(j)  Section 163 (with respect to interest) of the Internal Revenue Code shall be operative for the purposes of this chapter, except that the following provisions shall not be operative for the purposes of this chapter:

     (1)  Section 163(d)(4)(B) (defining net investment income to exclude dividends);

     (2)  Section 163(e)(5)(F) (suspension of applicable high‑yield discount obligation (AHYDO) rules);

     (3)  Section 163(h)(3)(F) (limiting mortgage interest); [and]

     (4)  Section 163(h)(4)(A)(i)(II) (definition of qualified residence for home mortgage interest deduction);

     (5)  Section 163(h)(4)(A)(ii)(II) (treatment of home mortgage interest deduction for married individuals filing separately); and

    [(4)] (6)  Section 163(i)(1) as it applies to debt instruments issued after January 1, 2010 (defining AHYDO)."

     SECTION 3.  The department of budget and finance, in consultation with the department of taxation, shall submit a report on the administration of this Act to the legislature no later than twenty days prior to the convening of the regular sessions of 2027, 2028, 2029, 2030, and 2031.

     SECTION 4.  Statutory material to be repealed is bracketed and stricken.  New statutory material is underscored.

     SECTION 5.  This Act, upon its approval, shall apply to taxable years beginning after December 31, 2025.

Report Title:

Department of Budget and Finance; Department of Taxation; Home Mortgage Interest Deduction; Income Tax; Reports

Description:

Eliminates the home mortgage interest deduction for second homes under Hawaii income tax law.  Requires reports to the Legislature.

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

STAND. COM. REP. NO. 2401

Honolulu, Hawaii

RE:     S.B. No. 2451

        S.D. 1

Honorable Ronald D. Kouchi

President of the Senate

Thirty-Third State Legislature

Regular Session of 2026

State of Hawaii

Sir:

     Your Committee on Housing, to which was referred S.B. No. 2451 entitled:

"A BILL FOR AN ACT RELATING TO TAXATION,"

begs leave to report as follows:

     The purpose and intent of this measure is to:

     (1)  Eliminate the home mortgage interest deduction for second homes under Hawaii income tax law; and

     (2)  Require reports to the Legislature.

     Your Committee received testimony in support of this measure from two individuals.

     Your Committee received testimony in opposition to this measure from the Hawaii Government Employees Association, AFSCME Local 152, AFL-CIO; Hawaiʻi Association of REALTORS; and two individuals.

     Your Committee received comments on this measure from the Department of Taxation and Tax Foundation of Hawaii.

     Your Committee finds that the home mortgage interest deduction (MID) on federal and state income taxes allows homeowners who itemize deductions to deduct mortgage interest attributable to a primary residence and second-home debt, and interest paid on home equity debt.  MID plays an important role in encouraging home ownership by making mortgage payments more affordable.  In its current form, MID includes second homes, including second homes that are not used as a primary residence.  This measure would remove MID for second homes.

     However, your Committee recognizes that many residents acquire a second home to house elderly parents or adult children who are unable to pay for their own home.  For these residents, MID provides financial relief that allows them to support their families, despite the State's high cost of living.  To account for the unique circumstances that some residents face, this measure requires further amendments.

     Accordingly, your Committee has amended this measure by:

     (1)  Inserting language providing that second homes that are used as a primary residence by the owner or a long-term tenant shall be eligible for the home mortgage interest deduction;

     (2)  Inserting language clarifying the contents of the required report;

     (3)  Amending section 1 to reflect its amended purpose; and

     (4)  Inserting an effective date of July 1, 2050, to encourage further discussion.

     As affirmed by the record of votes of the members of your Committee on Housing that is attached to this report, your Committee is in accord with the intent and purpose of S.B. No. 2451, as amended herein, and recommends that it pass Second Reading in the form attached hereto as S.B. No. 2451, S.D. 1, and be referred to your Committee on Ways and Means.

Respectfully submitted on behalf of the members of the Committee on Housing,