Vacation Destination Areas and Transient Vacation Rentals

As an investor looking to maximize their cash flow and make use of those times when you are not staying on-island, it is vital to understand that only certain areas on Kauai are zoned for short-term rentals (defined as being rented out for a period of less than 180 days).

To be able to short-term rent your home/condo it must be either:

  • located within the VDA (Vacation Destination Area), and have a TVR (Transient Vacation Rental) permit

  • be located outside of the VDA but have a TVNC (Transient Vacation Non-Conforming) permit.

VDA - Vacation Destination Area

The county of Kauai designated certain areas for visitors and this is where you’ll find the resorts and vacation condos on the island. Most of the VDAs are in Poipu, Kapaa, and Princeville which allows visitors to experience most parts of the island depending on their preference.

You are currently allowed to operate a short-term rental if you are within the VDA so if you plan on purchasing a condo in Poipu or Princeville you can be relatively certain you’ll be allowed to rent it out - please verify this with your real estate agent before submitting an offer.

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TVR - Transient Vacation Rental

According to the county of Kauai Ordinance 904, TVR's are permits for “dwelling unit(s) provided to transient occupants for compensation or fees, including club fees, or as part of interval ownership involving persons unrelated by blood, with a duration of occupancy of one hundred eighty (180) days or less.”

TVNC’s (Transient Vacation Non-Conforming) are TVRs that are outside of the VDA, and these units exist in residential areas.

As of 2008 the county is no longer allowing TVR applications that are outside of the VDA, but all current TVNC-permitted dwellings are grandfathered in. This means there are still approximately 438 TVNC-permitted dwellings scattered around the island and these can be extremely valuable properties to own, since these may be located in unique areas of Kauai that may be in high demand with no other inventory to chose from.

There are strict rules regarding the renewal process, however, and if you fail to meet the deadlines you will lose your TVNC permit, which could be disastrous.

If you own a residence/condo inside of the VDA you are allowed to get a TVR permit to rent it out for less than 180 days. You may also have a grandfathered-in TVR permit outside of the VDA which is known as a TVNC. All other properties on Kauai must be rented out for longer than 180 days at at time, or not at all.

TAT - Transient Accommodation Tax

TAT, or Transient Accommodation Tax, is imposed on gross income from renting for vacation purposes and currently sits at 10.25%.

If you are a foreign seller, both FIRPTA and HARPTA (withholding taxes) may apply and the state of Hawaii will check to see whether you’ve kept on top of your TAT so make sure you don’t miss this one.

Conclusion

This is a complicated issue and it’s usually worth a 5 minute chat to go over everything so we can understand how to best meet your needs. Give us a call on (808) 491-8115.