USA Investment Tax Planning
When purchasing property in the USA the following taxes are likely to be charged within the state you are to purchase:
Sales Tax - this tax is not always imposed on the purchase of property. However in 36 US states a property transfer tax of between 1% and 5 % is charged on the assessed value of your property.
Stamp Duty – this tax is a charge made when a mortgage has been obtained for the purchase of the property and consists of documentary stamps calculated on the total of the loan. In states such as Florida, stamp duty is charged at a rate of 35 cents per $100 of mortgage. In addition to stamp duty, investors must pay an Intangible Tax at 0.002% on the mortgage amount. Therefore, if you obtain a $100,000 mortgage,$350 in Documentary Stamps and $200 in Intangible Tax will need to be paid. It is important to note that neither of these taxes will be charged if you cash is used to finance the property purchase.
Capital Gains Tax - Capital Gains Tax also varies according to state, but if the property is owned for more than a year, the rate can amount to anything between 8% and 15%.
Inheritance Tax - these relate to gifts or transfer of ownership either while you are alive or upon your death. Both federal and state inheritance taxes will apply while there are great differences between the states relating to how your estate is taxed upon your death, so it pays to find out what your liabilities might be before committing to an investment.
Local Taxes - the local tax amount is on the assessed value of the property but is likely to be about 75% of the market value, depending on your state. The good news is that in 2006 ten US states decided to review local taxes in order to decrease them to more affordable levels.
Tax on Rental Income - all rental income is subject to USA tax. A standard withholding tax rate of 30% is applied to all rental income and is paid locally. In some states a double taxation agreement exists between the state and the UK, eg. Florida. Tax on rental income can be very low if handled correctly by your financial professionals, as generous allowances are in place, including mortgage interest relief as well as the cost of your inspection flights.
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