Hawaii Administrative Rules › Title 18 - DEPARTMENT OF TAXATION › Chapter 247 - CONVEYANCE TAX › Appendix II - Computation of Lease Rent in Extensions on Amendments of Lease

Current through June, 2024
Extensions or amendments of lease shall be taxable if there is
				any extension of term or any increase in rent. The tax shall be based on the
				rent capitalized for the extended term, or the period where the rental has been
				increased, or both, provided, the rent to be capitalized shall be the
				difference in rent.
Example No. 1:
Extension of term where there is no increase in
				rent.
Original lease is for 55 years and the rent is $100 a year.
				Ten years later, an extension is granted. There is still 45 years remaining on
				the original lease. The lease extension is for another 10 years, and the rent
				for this additional term is $100 a year.
Solution: Capitalize the rent using the graduated rent method
				for the extended period of the lease.
55 year factor minus 45 year factor times rent involved equals
				capitalized rent (15.990 -15.455) X $100 = capitalized rent (called CR)
$53.50 = CR
Example No. 2:
Extension of fixed rent period and there is no
				rental increase and no extension in the overall term of the
				lease.
Original lease is for 55 years. $100 is the rent for the first
				30 years of the lease.
Ten years later, the fixed rent period is extended by 10
				years. The $100 yearly rent remains the same.
Solution: This extension is not taxable as it does not add
				value to the leasehold.
Example No. 3:
Extension of fixed rent period with an increase in
				the fixed rent, and no increase in the overall term of the
				lease.
Original lease is for 55 years. The rent is fixed at $100 for
				the first 30 years.
Ten years later, the fixed rent is increased to $150 and the
				fixed rent period is extended 10 years. At this time there is 45 years
				remaining on the original lease.
Solution: Capitalize the difference in rent for the remaining
				term of the lease.
45 year factor times the net total of the fixed rent after the
				original fixed rent value is subtracted from the new fixed value and this will
				equal the capitalized rent (called CR)
(15.455 X ($150 - $100) = CR).
15.455 X $50 = CR
$772.75 = CR
Example No. 4:
Extension of lease term where an additional fixed
				rent period is added and this additional period has an increased rent
				figure.
Original lease is for 55 years. The first 30 years of this
				lease have a fixed rent of $200. The next 5 years of the rent have a fixed rent
				of $250.
Period
Term
Fixed Rent
						  Amount
1st period
30 years
$200
2nd period
5 years
$250
Nine years later with 46 years remaining on the original lease
				term the following changes occur. First, the lease term is extended 5 years.
				Second, a third fixed rent period is added and rent for this period is $300.
				Third, the extended term of the lease is now 51 years (46 years remaining on
				original lease plus 5 year extension of lease).
Solution: Since the rent is increased for the last 25 years of
				the lease, capitalize the difference in the rent for this portion of the lease.
				46 year factor minus 26 year factor times the net difference between the new
				fixed rent and the old fixed rent
(15.524 - 13.003) X ($300 - $250)
2.521 X $50 = $126.05
51 year factor minus 46 year factor times new fixed
				rent
(15.583 - 15.524) X $300
0.059 X $300 = $17.70
$126.05
17.70
Total capitalized rent
$143.75
The factors used are based on the Inwood Table, the present
				  worth of one per annum. One uses the compound interest table which deals with
				  the present value of an ordinary annuity.