Owning property in New York City offers investors from all over the world many opportunities, from proximity and the exciting stock market to have a comfortable base of operations for those looking to open a business stateside. Here are a few of the most important things you need to know about owning real estate in NYC as a foreign investor.
Condos, Not Co-ops
One of the most common forms of housing in New York is cooperative housing, which is essentially being part-owner of a property. Joining a co-op is time-consuming and often requires a lot of in-person meetings. Purchasing a condominium provides the same comfort without the extensive paperwork.
New York has a mansion tax, which no longer refers explicitly to large residential properties. Rather, it’s a property tax of one percent (of the assessed value) on any real estate purchase worth more than $1 million. Given the average cost of much of the housing in areas like Manhattan, this is a very common tax.
New Development Tax
New York State takes an additional tax for new developments, which often gets passed on to investors. The minimum new development tax is .4 percent, but it can go as high as 1.4 percent for properties that are worth more than $500,000.
For purchasers who receive assistance with financing, New York State also takes a mortgage recorder’s tax. This is typically a little more than two percent, depending on the value of the property. The lender pays .25 percent of this tax.
Remember to File Capital Gains Tax
If you decide to sell real estate in New York at a later date, remember that both the United States government and New York State receive a tax from the sale of the property. This is known as the capital gains tax. The federal government currently takes 15 percent of earnings from property sales and New York takes a little less than nine percent. Capital gains also apply to interest earned on bank accounts held in the United States.
The Foreign Investment in Real Property Tax is a withholding tax levied on the sale of property by foreign investors. Investors must withhold approximately 10 percent of the sale price to make sure that all other taxes are paid and current. Investors who prove current on all taxes to the United States Internal Revenue Service (IRS) will receive a refund of the total amount. In the case of investments involving foreign beneficiaries or corporations, the withholding is 35 percent.
Advantages of LLC Designation
If possible, foreign investors should avoid purchasing property as a C-Corp, which is the tax designation for a full corporation with percentage-owning investors. The tax rates for individuals and those operating under a Limited Liability Corporation (LLC) are the same, but purchasing real estate as an LLC protects an individual’s other assets in the case of a legal dispute.
Taxpayer Identity Numbers
To file taxes in the United States, an individual requires a Taxpayer Identity Number (TIN). As a non-citizen, a TIN can be obtained by filing IRS form W-7.
Learning the ins and outs of taxes and property in New York City and the United States can seem daunting at first, but with a little know-how, foreign investors can make the most of a smart purchase.