Tax Guide to USA Property
When investing in property in the USA, you will have to be awar
e of the types of taxes to be paid on the property. Taxing is a complex area, so to avoid any pitfalls, you should find out as much about the US tax system as possible. If in doubt, seek advice from professionals. Below you'll find a basic overview of US property taxes.
Tax on Rental Income
If you buy an investment property in the USA and you are a resident of the UK, the rental income will be subject to both UK and US taxes. Tax on rental income can be low if handled properly, and your tax can even be reduced to zero if you only own one property. To find out more about taxes on rental income, read our Tax Advice.
Capital Gains Tax
If the property is owned for more than a year, you will also have to pay capital gains tax, which varies between 8% and 15%.
Sales Tax
A sales tax is imposed on the purchase of property in 36 US states. This tax varies between 1% and 6%, and is charged depending on the value of your property.
Stamp Duty
If a mortgage has been obtained to purchase the property, a tax charge is calculated based on the amount of the mortgage loan. In addition to stamp duty, you will also have to pay an Intangible Tax, at 0.002% of the total mortgage amount. However, if you have used your own cash to buy the property, neither of these taxes will be payable.
Local Taxes
If you buy a property in the US, you will also have to pay local taxes, levied by the local government at the municipal or county level. The tax will be charged based on the assessed value of your property, which is around 75% of the true market value. Rates can vary between 0.2% and 4% across different states, and this rate will depend on local facilities and policy-making.
Inheritance Tax
Inheritance or estate tax might be payable on your property in case of transfer of ownership or upon your death. Both federal and state taxes can apply, with significant differences between different states. For US citizens the amount exempt from inheritance tax is rather generous, while non-US citizens will only have a much smaller exempt amount.
Tax planning is crucial before buying an investment property, and should influence the choice of your location, and investment strategy. Effective planning will have a positive impact on your cash flow, and being aware of all possible costs is essential for risk management.