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United States – Property Taxes

Property Tax

  • Taxes levied on real estate properties by local government based on the assessed value of the property.
  • The tax rate varies by location, but the national average rate is around 1.1%.
  • Example: A property with a market value of $500,000 and a property tax rate of 1.1% would result in a $5,500 property tax bill.

Capital Gains Tax (CGT)

  • Taxes owed on the profit made from selling a property that is not your primary residence.
  • The tax rate is 20% for most taxpayers, with a portion being excluded for individuals.
  • Example: If a person sells a property for $600,000, and the cost of buying and selling the property was $100,000, the individual would owe CGT on $500,000 ($600,000 – $100,000), resulting in a $100,000 tax bill.

Inheritance Tax

  • Tax on property that is passed down to heirs upon the death of the owner.
  • There is no federal inheritance tax in the United States, but a handful of states have their own inheritance tax laws.
  • Example: If an individual inherits a property worth $500,000 in a state with an inheritance tax rate of 10%, they would owe $50,000 in inheritance tax.

Gift Tax

  • Tax on gifts of property or cash given to individuals.
  • The tax is owed by the giver, not the recipient, and the rate is the same as the federal income tax rate for the giver.
  • Example: If an individual gives a property worth $500,000 to their child, they may owe a gift tax of around 40% if their federal income tax rate is that high, resulting in a $200,000 gift tax bill.

Tax on Property Income

  • Tax owed on rental income from a property.
  • The tax rate is the same as the federal income tax rate for the owner.
  • Example: If an individual earns $15,000 in rental income from a property, they would owe federal income tax on that amount at their marginal tax rate, resulting in a tax bill that would vary based on their specific tax situation.

Tax Advantages in Buying a House in the United States

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  • Mortgage Interest Deduction: Homeowners can deduct the interest paid on their mortgage from their taxable income, up to a limit set by the government.
  • Property Tax Deduction: Property taxes paid on a home are deductible on federal income taxes.
  • Capital Gains Exclusion: If you sell your primary residence, you can exclude up to $250,000 in capital gains from taxes ($500,000 for married couples filing jointly).
  • Home Office Deduction: If a portion of your home is used exclusively for business purposes, you may be able to deduct expenses related to that space, such as mortgage interest, property taxes, and utilities.