New York City Real Estate Taxes - Q & A
There are various taxes and exemptions associated with selling New York City real estate. Below you
What are the Capital Gains on the Sale of a Primary Residence
Sellers are taxed on the difference between the purchase and selling price that equates to the profit realized upon sale. The profit is called Capital Gains. Depending on the state of the home, the amount of Capital Gains Tax varies. The taxes also vary between residents and non-residents.
There are significant advantages for when purchasing
real estate for investment purposes. The interest paid on mortgages
is fully deductible. However, the downside for the investors is the points
that may have paid to lower the interest loan rate and the loan origination
fees are not deductible.
Taxes on the proceeds of sale for non-residents equal to 30% for foreigners on properties held longer than one year. The United States created the Foreign Investment in Real Property Tax Act in 1980 that withholds the taxes directly from the proceeds of the sale to guarantee payment of taxes from non-residents. The Internal Revenue Service withholds 10% of the sales price and New York State withholds additional 6.85% in taxes.
LLC’s can have multiple partners and provide additional protection and benefits to all the partners. One advantage of partnership within an LLC is when selling the real estate there is the option to transfer the title of the property to the LLC to avoid the taxes upon the sale of the property. After buying a new property, the partners will transfer title to the partner of the LLC so ownership is in the partner’s personal name.
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Exemption options include a tax break if the property is used as a primary residence for two years but then you are forced to sell the home due to relocation for a different job, health reasons and other unavoidable circumstances.
Yes there are significant advantages of financing your real estate property. The interest paid on the mortgage is tax deductible and reduces the income amount taxed. There are limits to the amount of interest claimed on taxes so it is advisable to contact a professional tax consultant.
When filing personal income taxes with the IRS, the Schedule D is used to report Capital Gains. If the individual owned the residence for one year or less, the Capital Gain is reported on the Schedule D as a short-term Capital Gain. If the residence was owned longer than a year, it is reported on the Schedule D as a long-term Capital Gain. The time of ownership is crucial to the period for reinvesting the Capital Gain in the future. If a individual can delay selling the residential home until they have lived in the home for over two years, they will have longer to reinvest any Capital Gain from the sale of the home.
One of the ways to avoid the Capital Gains tax is to purchase a “like-kind” property to replace the property sold. This means the new acquired home will be of equal value or greater than the property sold. There are forms to file with the IRS at tax time to notify them of the purchase of a new residence and avoiding the Capital Gains tax. There is a time limit to acquiring a new residence; the time limit is usually 180 days to take possession or to sign the closing paperwork on the new residence. Only property within the continental United States qualifies for the like-kind exchange law.
Learn More: 1031 Tax Exchange
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New York City Real Estate