Real Estate Taxes


Dealings in real estate involve in having comprehensive, continuing exposure to all aspects of real estate tax planning.

Exhaustive study of the various taxes that are imposed on real estate is required.

  • Annual Real Estate Tax
  • Real Estate Capital Gains Tax
  • Real Estate Transfer Taxes
  • Real Estate Tax/Inheritance Tax
  • Real Estate Gift Tax
Annual Real Estate Tax

Real estate tax is an ad valorem tax, levied annually on the value of real property by local and state authorities. Property tax is utilized to meet the requirements of a particular area.

A property's assessment is done by an assessor or a local authority based on its market value. Once an estimate of the monetary value of the property is determined, the tax is assessed corresponding to that value.

Property tax is calculated by taking into account the property tax rate and the assessment of the property. For instance, if you have moved into a neighbourhood with a seven percent property tax rate and your house is assessed at $400,000, then you have to pay a property tax of $28,000 ($400,000 x 7 percent).

Not all real property is taxable. Certain religious institutions or properties held by the government are totally exempt from paying property taxes. Some others, like veterans who are eligible for an exemption, are partially exempt.

Real Estate Capital Gains Tax

When people sell property, after owning it for more than a year, for more than what they had actually paid for it, they have made a profit or capital gain and hence liable to pay capital gains tax.

If the property is sold within a year of holding it, any gain arising from the sale is taxed at the person's ordinary income tax rate.

A person is allowed to deduct only a part of the capital losses that the sustains, but is required to pay taxes on all gains derived from a sales transaction.

Real Estate Transfer Tax

Real estate transfer taxes are charged for the sale or transfer of real property that is located in the state. Transfer taxes are charged on the transfer of all property types - agricultural, residential and commercial. Transfer taxes are imposed only on the purchasers and sellers of property.

Transfer taxes are used to meet the costs involved in documentation and recording of the transfer of ownership on the legal document when property is sold.

The real estate transfer taxes are local and state taxes that are imposed on value of a property at the time of transacting a sale when property ownership is transferred from one party to another.

Real Estate Property Transfer Taxes Types

There are basically three types of property transfer taxes

Real Estate Realty Transfer Taxes

The realty transfer tax is charged on the selling price or gross receipts arising from the sale of real property. This tax is generally not levied on property transfers with a value less than $100 - $500.

Real Estate Document Recordation Taxes

Also called deed transfer taxes, these taxes need to be paid prior to ownership transfer is appropriately recorded in the county records office. A stamp should be attached to the title or deed signifying that the document recordation tax has been duly paid before the transfer of property comes into force.

The document recordation tax rate is calculated as a percentage of the selling or buying price.

Mortgage Taxes

A person who takes a mortgage to buy real property has to pay a mortgage tax on the mortgage amount so taken.

Estate Tax/Inheritance Tax

The Estate Tax, also called Inheritance tax, is a tax on a person's right to transfer taxable estate to a living person or institution after his death. Estate tax takes account of everything a person owns or has interest in at the time of his death. The market value of these items is ascertained to arrive at Gross Estate. Certain deductions are made from the Gross Estate to obtain the Taxable Estate. The tax rate is levied on the value of the taxable estate to calculate the tentative tax. The executor or the person in charge of the estate administration has to pay the tax.

Real Estate Gift Tax

Gift tax is charged on property transferred to others during the lifetime of a person, provided the gift amount is more than twelve thousand dollars a year for each person. A person can gift property amounting to $12,000 each year to a number of people and wedded couples can give away property amounting to twice this figure, without being charged gift tax.

The services of a financial consultant should be hired to advise and assist people dealing in real estate to unravel the complex tax computations pertaining to their property type.