The real estate market in the USA is constantly evolving and reaching never-before-seen heights. An increasing number of people are engaged in real estate transactions and the demand for real estate agents that facilitate these transactions is only going up.
Gone are the days when the services of an agent were avoided for fear of fraud or too high a commission. Being a real estate agent now is considered one of the most prestigious and highly paid professions.
But being an agent, you can only help your client if you have understood the minutiae of tax deductions prevalent in the American real estate industry. Be thorough with the following tax deductions.
1. US Income Tax
In the USA, Income tax was first charged in 1913. The taxpayer should independently file the tax before April 15 and disclose all the income earned during the year. After that, the document is transferred to the local or federal tax office. All Americans need to give a certain percentage of their income to the state. Always keep in mind that US law provides for the possibility of collecting federal income tax from a married couple. For this, the income of the husband and wife is calculated. Nevertheless, each of the spouses may file a declaration separately. Have a look at the Tax structure in the USA for married and unmarried individuals:
|Income (Unmarried Folks)
|Applicable Tax percentage
|Income (married Folks)
|Applicable Tax percentage
|Income up to $14,000
|More than $311K
|More than 311K
You must also understand that, in the USA, a non-taxable minimum is provided to needy Americans on which no federal tax is applied. You can use a tax calculator and or hire experts for tax filing. US law provides several options to reduce the number of payments levied in favour of the state. It is done by donating a portion of the money earned for charitable purposes. Always keep in mind that individuals in America resort to the services of tax specialists to determine the tax liability and file it. The Tax laws in the USA are rather complicated and quite difficult for a non-professional to understand it.
2. Property Tax
All citizens are obliged to make contributions to the state budget. These funds go to the provision of state programs, health care, the maintenance of the army, the provision of assistance to vulnerable people, the provision of benefits and a whole list of other goals. Property tax is one of the types of deductions.
It is a deduction to the treasury of the state, which is made by persons owning property. Payment is regarded as a local category. This means that the deadlines for depositing funds and the procedure for implementing the procedure are established by the authorities of the constituent entities of the USA. They fix rates to make the calculation. However, the parameter should not exceed the norms that are reflected in the current legislation.
Today, there are two types of property – movable and immovable. Both are subject to taxation. Individuals may dispose of property on the basis of property rights. A similar opportunity arises for legal entities as a result of temporary possession, disposition by agreement or trust management. Movable and immovable property differ significantly from each other.
The category of movable property included-
- Cash and securities,
- Animals and other property that does not fall under the definition of real estate and
The category of movable property includes:
- Residential and non-residential premises,
- Buildings and constructions,
- Objects whose construction is not completed and
- Other properties, whose movement is impossible without damage to integrity.
It is important to determine the peculiarities of the calculation. So, as a real estate agent, you need to know the rate and tax base. For individuals, the state has simplified the process of determining the number of deductions. For them, the calculation is performed by employees of the Federal Tax Service.
3. Tax Applied on LLC
According to the guidelines of IRS, US legal entities owned by foreign nationals (single or more than own business partner) are required to file the tax regardless of the foreign investor’s personal tax status and whether the USA has an income treaty with the foreign investor’s home country or not. An LLC provides additional confidentiality to a foreign buyer and his/her foreign assets are never at risk.
4. Capital Gains Tax
When a foreigner sells property in the United States, he/she pay capital gains taxes withheld by FIRTPA. The IRS will keep 10% of the total price of the actual sale of real estate property. Sometimes, you can get refunds while filing a tax return on capital gains. Always keep in mind that Capital gains tax for US residents and companies is 15-20%. Foreigners need to pay around 30% Capital gains tax. Owning property through a limited liability company eliminates the 10% payment procedure (FIRPTA) and reduces the capital gains tax up to a certain extent.
5. Real Estate Transfer Tax
In the USA, Property transfer tax is usually paid by the property seller. There are some cases when the buyer is offered to pay real estate transfer tax at the sale price. There is both a city real estate transfer tax and a state tax. In New York, a property transfer tax for a property with a value below $500,000 is 1% of the purchase price.
For a property of equal value of $500,000 or more, the property transfer tax is 1.425%. The State tax on the transfer of a real estate in New York is 0.4% of the purchase price, regardless of the value of the property. Also, in New York, there is an additional tax called high-value property tax, which is 1% of the value of the real estate at a price above $ 1 million. A property tax of high value is paid by the buyer.
6. Inheritance Tax
In the event of the death of the owner, the inheritance tax must be paid by the owner of the property of the deceased. Always keep in mind that Any tangible or personal property located in the United States and valued at more than $60,000 requires individuals to pay the estate tax when the foreign owner dies. Currently, the inheritance tax in New York is nearly 16%. If you own real estate through a limited liability company, then you don’t need to pay the inheritance tax in the USA. You can pay it in your home country. The LLC should be in operational mode.
7. Gift Tax
At a certain point in time to relatives or friends in the USA, you need to pay a gift tax to the USA. The gift tax is 40%. A foreigner can make donations and gifts up to $ 14,000 to any person in the USA. Such a person may also make annual gifts to his spouse/non-citizen/non-US citizen in the amount of $143,000, without the need to pay the above taxes. Always keep in mind that ownership through a limited liability company involves the payment of a gift tax in the country of residence.
8. Commission to Real Agents
In the real estate field, a standard commission has been accepted that agents take for their services. Many people think that agents have the easiest job in the world- just help people make transactions and get a cut. In a real estate transaction, two agents from different real estate agencies usually act, one agent has found an owner who wants to rent an apartment, and the second agent finds a client who needs to rent a house. The commission is divided among them. Finding an owner with an apartment or a client is a work that costs time and money for advertising.
9. Office Deductions
A great way to save money on buying a property is to get an office tax deduction that allows you to return part of your taxes back to your bank account. This deduction is received by the taxpayer when buying and selling office/house. There are two office deductions- (A) property deduction when buying a home and (B) property deduction when selling a home.
This collection of questions and answers will deal only with a property tax deduction when you buy a home. Unlike other tax deductions for personal income tax, the unused amount of property deduction can be transferred to the next year. Taxpayers have to submit a declaration for the last year in which the property was acquired.
If desired, the taxpayer may also request proof of receipt of a tax deduction for the employer. In this case, the employer will immediately refund the amount to the tax for the current year. If the taxpayer does not apply to a deduction from the employer, the next day he repeats the whole process in the tax office
America has become a new hub for many individuals all around the world. They migrate to this beautiful country and tend to buy property to settle in. Generally, they seek the help of real estate agents while conducting activities in the real estate industry. So, there is a great demand for professionals with a deep knowledge of real-estate Industry. These are some tax deductions every real estate agent must know. It will help them to serve their clients perfectly.
David Lane is working as a Realtor for Thailand Property – Which provides real estate services such as real estate in thailand, property Thailand to clients. Being a realtor, his exceptional knowledge of the market helped him a lot in selling numerous properties all over Thailand. He has a passion for writing and loves to share his real estate related knowledge with people.
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