For Hawaii income tax purposes, there is no separate defined statutory category titled “net investment income” on Form N-15. Instead, taxpayers report various categories of income (such as interest, dividends, capital gains, rents, royalties, and pass-through income) in the appropriate sections of the Hawaii return, and compute Hawaii Adjusted Gross Income (AGI) based on federal AGI with Hawaii additions and subtractions.
Income from investments is generally included in federal AGI and then carried over to Hawaii returns, subject to Hawaii-source rules for nonresidents and part-year residents.
Reporting Net Investment Income
- Income from rents, royalties, partnerships, S corporations, estates, trusts, and REMICs is generally reported on Form N-15, Schedule E-type income sections (typically Line 17) as part of total income from pass-through and rental activities.
- Capital gains and losses are reported using Schedule D (and related federal forms), then carried into Hawaii AGI calculations as applicable.
- Interest and dividend income are reported directly on the appropriate lines of Form N-15 consistent with federal reporting.
- If a taxpayer receives a Hawaii Schedule K-1 (Form N-20 or Form N-35), the income, deductions, credits, and other items shown must be used to determine the Hawaii-source portion of pass-through income.
Special Considerations
- Nonresidents and part-year residents are taxed only on Hawaii-source income, including Hawaii-source rental income, business income, and other income effectively connected with Hawaii activities.
- Capital gains are taxable in Hawaii only to the extent they are Hawaii-source under Hawaii residency and sourcing rules (for example, gains from Hawaii real property may be Hawaii-source).
- Partnership income and withholding (if any) are reported through the applicable Hawaii Schedule K-1 reporting system and related return schedules, depending on entity type and filing requirement.
- Tax credits and recapture items are reported on the specific credit schedules and applicable K-1 lines for each credit; there is no single universal K-1 line for all recapture items.
Exclusions and Adjustments
- Hawaii begins with federal AGI, then applies Hawaii-specific additions and subtractions to compute Hawaii AGI.
- Certain items may be excluded or adjusted under Hawaii law (for example, specific state-conforming exclusions or statutory adjustments), as detailed in the Form N-11 and Form N-15 instructions.
- All adjustments must follow the specific Hawaii worksheet or schedule instructions applicable to the item.
Source:
Form N-15
N20 Schedule K-1
Disclaimer: Always verify details with the most current Federal or State Department of Revenue Forms and Instructions. For complex situations, consult a CPA or tax attorney.