Global Property Guide

Financial Information for Residential Property Buyers


Living There

Last Updated: April 20, 2018

INDIVIDUAL TAXATION

United States new apartments

Residents are taxed on their worldwide income. Foreigners become residents if they hold a U.S. green card and have entered the United States or if they meet a substantial presence test. Married individuals have the option of filing separately or jointly.

INCOME TAX

Residents are taxed on all kinds of income. There are four categories of income: (1) wages and salaries, (2) business income, (3) investment income, and (4) capital gains. All kinds of income, except capital gains, are generally aggregated and taxed at the same rates.

Taxable income is computed by determining the gross income, then subtracting certain statutory deductions to arrive at adjusted gross income, then subtracting the standard deduction amount or the amount of itemized deductions and personal exemption amounts.

Income is taxed at the federal, state and municipal levels, with the exception of some states and municipalities that do not levy taxes on income. The tax rates used depend on which status the taxpayer files under. There are four filing categories for taxpayers, namely; (1) single, (2) head of household, (3) married filing jointly, and (4) married filing separately.

Federal Income Tax

Income is taxed at the federal level at progressive rates. Taxable income is generally computed as gross income less certain statutory deductions to arrive at adjusted gross income (AGI), less the standard deduction amount or the amount of itemized deductions, less personal exemption amounts.

FEDERAL INCOME TAX 2017 FOR MARRIED INDIVIDUALS FILING JOINTLY

TAXABLE INCOME, US$ TAX RATE
Up to US$18,650 10%
US$18,650 - US$75,900 15% on band over US$18,650
US$75,900 - US$153,100 25% on band over US$75,900
US$153,100 - US$233,350 28% on band over US$153,100
US$233,350 - US$416,700 33% on band over US$233,350
US$416,700 - US$470,700 35% on band over US$416,700
Over US$470,700 39.60% on all income over US$470,700
Source: Global Property Guide

FEDERAL INCOME TAX 2017 FOR HEADS OF HOUSEHOLDS

TAXABLE INCOME, US$ TAX RATE
Up to US$13,350 10%
US$13,350 - US$50,800 15% on band over US$13,350
US$50,800 - US$131,200 25% on band over US$50,800
US$131,200 - US$212,500 28% on band over US$131,200
US$212,500 - US$416,700 33% on band over US$212,500
US$416,700 - US$444,550 35% on band over US$416,700
Over US$444,550 35% on all income over US$444,550
Source: Global Property Guide

FEDERAL INCOME TAX 2017 FOR SINGLE INDIVIDUALS

TAXABLE INCOME, US$ TAX RATE
Up to US$9,325 10%
US$9,325 - US$37,950 15% on band over US$9,325
US$37,950 - US$91,900 25% on band over US$37,950
US$91,900 - US$191,650 28% on band over US$91,900
US$191,650 - US$416,700 33% on band over US$191,650
US$416,700 - US$418,400 35% on band over US$416,700
Over US$418,400 39.60% on all income over US$418,400
Source: Global Property Guide

FEDERAL INCOME TAX 2017 FOR MARRIED INDIVIDUALS FILING SEPARATELY

TAXABLE INCOME, US$ TAX RATE
Up to US$9,325 10%
US$9,325 - US$37,950 15% on band over US$9,325
US$37,950 - US$76,550 25% on band over US$37,950
US$76,550 - US$116,675 28% on band over US$76,550
US$116,675 - US$208,350 33% on band over US$116,675
US$208,350 - US$235,350 35% on band over US$208,350
Over US$235,350 39.60% on all income over US$235,350
Source: Global Property Guide

FEDERAL INCOME TAX 2016 FOR MARRIED INDIVIDUALS FILING JOINTLY

TAXABLE INCOME, US$ TAX RATE
Up to US$18,550 10%
US$18,550 - US$75,300 15% on band over US$18,550
US$75,300 - US$151,900 25% on band over US$75,300
US$151,200 - US$230,450 28% on band over US$151,900
US$231,450 - US$413,350 33% on band over US$230,450
US$413,350 - US$466,950 35% on band over US$413,350
Over US$466,950 39.60% on all income over US$466,950
Source: Global Property Guide

FEDERAL INCOME TAX 2016 FOR HEADS OF HOUSEHOLDS

TAXABLE INCOME, US$ TAX RATE
Up to US$13,250 10%
US$13,250 - US$50,400 15% on band over US$13,250
US$50,400 - US$130,150 25% on band over US$50,400
US$130,150 - US$210,800 28% on band over US$130,150
US$210,800 - US$413,350 33% on band over US$210,800
US$413,350 - US$441,000 35% on band over US$413,350
Over US$441,000 35% on all income over US$441,000
Source: Global Property Guide

FEDERAL INCOME TAX 2016 FOR SINGLE INDIVIDUALS

TAXABLE INCOME, US$ TAX RATE
Up to US$9,275 10%
US$9,275 - US$37,650 15% on band over US$9,275
US$37,650 - US$91,150 25% on band over US$37,650
US$91,150 - US$190,150 28% on band over US$91,150
US$190,150 - US$413,350 33% on band over US$190,150
US$413,350 - US$415,050 35% on band over US$413,350
Over US$415,050 39.60% on all income over US$415,050
Source: Global Property Guide

FEDERAL INCOME TAX 2016 FOR MARRIED INDIVIDUALS FILING SEPARATELY

TAXABLE INCOME, US$ TAX RATE
Up to US$9,275 10%
US$9,275 - US$37,650 15% on band over US$9,275
US$37,650 - US$75,950 25% on band over US$37,650
US$75,950 - US$115,725 28% on band over US$75,950
US$115,725 - US$206,675 33% on band over US$115,725
US$206,675 - US$233,475 35% on band over US$206,675
Over US$233,475 39.60% on all income over US$233,475
Source: Global Property Guide

FEDERAL INCOME TAX 2015 FOR HEADS OF HOUSEHOLDS

TAXABLE INCOME, US$ TAX RATE
Up to US$13,150 10%
US$13,150 - US$50,200 15% on band over US$13,150
US$50,200 - US$129,600 25% on band over US$50,200
US$129,600 - US$209,850 28% on band over US$129,600
US$209,850 - US$411,500 33% on band over US$209,850
US$411,500 - US$439,000 35% on band over US$411,500
Over US$439,000 35% on all income over US$439,000
Source: Global Property Guide

Deductions

Two types of deductions are allowed in the computation of taxable income; deductions from gross income to arrive at adjusted gross income (AGI), and deductions from AGI to arrive at taxable income.

Deductions from Gross Income

The following are the deductions that may be taken from gross income to arrive at AGI:

  • Trade or business deductions
  • Losses from the sale of property
  • Deductions attributable to property held for the generation of income
  • Contributions to a pension, profit-sharing, or annuity plan by a self-employed individual
  • Contributions to regular IRA
  • Alimony payments
  • Moving expenses
  • Contributions made to a qualified Medical Savings Account

Deductions from Adjusted Gross Income (AGI)

The deductions taken from the AGI to arrive at taxable income are either the standard deduction or the total amount of deductions. The amount of the standard deduction depends on the status of the taxpayer.

Itemized deductions may include the following:

  • Mortgage interest payments on a primary and secondary residence up to a total mortgage amount of US$1,000,000, plus US$100,000 for home equity loans
  • State and local income taxes
  • State and local real estate taxes
  • Charitable contributions
  • Medical expenses to the extent such expenses exceed 7.5% of the taxpayer's AGI
  • Casualty losses not compensated for by insurance to the extent that such losses exceed 10% of AGI

Itemized deductions labeled as "miscellaneous" may only be deducted if they exceed 2% of the taxpayer's AGI. Itemized deductions are also subject to an overall limitation, the amount of which depends on the status of the taxpayer

State Income Tax

Income is also taxed at the state level. States tax income derived in their jurisdiction. The rates vary from state to state, but the income brackets, however, are usually the same as, or modified from the federal income tax brackets.

Seven states, Alaska, Florida, Nevada, South Dakota, Texas, Washington State and Wyoming, do not levy taxes on income. New Hampshire only applies tax on income from interest and dividends, and Tennessee, only imposes taxes on income from stocks and bonds.

An Example: New York State

The state of New York taxes the income of residents in New York. The computation of the tax liability starts from adjusted gross income (AGI). Certain additions and subtractions from AGI, such as items of income taxable in New York but not at the federal level and items taxable at the federal level and not at New York, will result to New York adjusted gross income (NYAGI). Just as at the federal level, taxpayers may also choose between the standard deduction and itemized deductions in New York. However, those using the standard deduction for federal taxes must also use the standard deduction when paying tax in New York.

STATUS
STANDARD DEDUCTION, US$
Married filing jointly
US$16,050
Heads of households
US$11,200
Single individuals
US$8,000
Married filing separately
US$8,000

NEW YORK STATE INCOME TAX 2017 FOR MARRIED INDIVIDUALS FILING JOINTLY

TAXABLE INCOME, US$ TAX RATE
Up to US$17,150 4%
US$17,150 - US$23,600 4.50% on band over US$17,150
US$23,600 - US$27,900 5.25% on band over US$23,600
US$27,900 - US$43,000 5.90% on band over US$27,900
US$43,000 - US$161,550 6.45% on band over US$43,000
US$161,550 - US$323,200 6.65% on band over US$161,550
US$323,200 - US$2,155,350 6.85% on band over US$323,200
Over US$2,155,350 8.82% on all income over US$2,155,350
Source: Global Property Guide

NEW YORK STATE INCOME TAX 2017 FOR SINGLE INDIVIDUALS & MARRIED INDIVIDUALS FILING SEPARATELY

TAXABLE INCOME, US$ TAX RATE
Up to US$8,500 4%
US$8,500 - US$11,700 4.50% on band over US$8,500
US$11,700 - US$13,900 5.25% on band over US$11,700
US$13,900 - US$21,400 5.90% on band over US$13,900
US$21,400 - US$80,650 6.45% on band over US$21,400
US$80,650 - US$215,400 6.65% on band over US$80,650
US$215,400 - US$1,077,550 6.85% on band over US$215,400
Over US$1,077,550 8.82% on all income over US$1,077,550
Source: Global Property Guide

NEW YORK STATE INCOME TAX 2017 FOR HEAD OF HOUSEHOLD

TAXABLE INCOME, US$ TAX RATE
Up to US$12,800 4%
US$12,800 - US$17,650 4.5% on band over US$12,800
US$17,650 - US$20,900 5.25% on band over US$17,650
US$20,900 - US$32,200 5.90% on band over US$20,900
US$32,200 - US$107,650 6.45% on band over US$32,200
US$107,650 - US$269,300 6.65% on band over US$107,650
US$269,300 - US$1,616,450 6.85% on band over US$269,300
Over US$1,616,450 8.82% on all income over US$1,616,450
Source: Global Property Guide

CAPITAL GAINS TAX


Federal Capital Gains Tax

Income from sale of real property is always considered as "effectively connected income." For properties disposed of on or after May 6, 2003 until December 31, 2010 the tax rate on net gains will be 15%. The tax rate would be reduced to a minimum of 5% for individuals belonging to the 10% and 15% tax brackets. The latter will further be reduced to 0% for capital assets disposed of after December 31, 2007. However, the rates will revert to the old 20% and 10% on January 1, 2011 during which the reduced rates for capital gains expire unless Congress extends the law makes it permanent (which it most probably will).

To calculate the capital gains or losses, take the sales price then deduct selling expenses to arrive at the amount realized. From the amount realized subtract the 'adjusted basis' to get to the final taxable gain or loss.

The 'adjusted basis' is the original cost of property, plus expenses deemed to have increased its value, less claims which have notionally decreased its value. Expenses deemed to have increased its value are capital improvements (roof replacement, paving the driveway, central air conditioning installation, rewiring, etc.), assessments for local improvements (water connections, sidewalks, roads), casualty losses (restoration of damaged property), legal fees, and zoning costs. Expenses deemed to have decreased its value are depreciation, casualty or theft loss deductions and insurance reimbursement, certain credits, exclusions and deductions, and postponed gain from the sale of a home.

For homes that have been owned and occupied as the taxpayer's primary residence for at least 2 years during the 5 year period before the sale, an exemption of US$250,000 (US$500,000 for married taxpayers filing jointly) applies.

State Capital Gains Tax

Most states tax capital gains as part of income, so the applicable rates are the state income tax rates.

CORPORATE TAXATION

INCOME TAX

Corporate income is taxed at the federal, state and sometimes at the municipal levels. Income is taxed during the year it is earned, and again when it is distributed to the shareholders.

Federal Corporate Income Tax

Corporate income is taxed at the federal level at progressive rates. Certain deductions are allowed, such as necessary business expenses, depreciation, interest payments, real estate taxes, losses not compensated for by insurance and taxes paid at the state and municipal levels.

FEDERAL CORPORATE INCOME TAX

TAXABLE INCOME, US$ TAX RATE
Up to US$50,000 15%
US$50,000 - US$75,000 25% on band over US$50,000
US$75,000 - US$100,000 34% on band over US$75,000
US$100,000 - US$335,000 39% on band over US$100,000
US$335,000 - US$10,000,000 34% on band over US$335,000
US$10,000,000 - US$15,000,000 35% on band over US$10,000,000
US$15,000,000 - US$18,333,333 38% on band over US$15,000,000
Over US$18,333,333 flat rate of 35%
Source: Global Property Guide

State Corporate Income Tax
State governments also levy their own taxes on corporate income. Capital gains are combined with ordinary income, and taxed at the same rates as income. The rates vary from state to state, as well as the rules for computing the tax base. Generally, though, only the amount of income allocated to a particular state is taxable in that state.

An Example: New York State
In the State of New York, corporations compute for taxes on four different bases, and pay tax on the base with the highest liability. The four bases are:

  1. A tax on the allocated entire net income of the corporation, at varying rates, the maximum of which is 7.5%.
  2. A tax of 0.178% on business and investment capital allocated to New York after short and long term liabilities are deducted, for which the maximum tax is US$1,000,000.
  3. A 1.5% tax on the alternative minimum tax base.
  4. A separate minimum tax at fixed dollar amounts, based on the gross payroll

PROPERTY TAXATION


Real Estate Tax

Real estate property is not taxed at the federal level. Real estate taxes are levied by the local municipalities and counties of the U.S. states. The rates vary from jurisdiction to jurisdiction, as well as the methods of assessing the value of the property.

An Example: New York City

The city of New York levies taxes on real estate property within its jurisdiction. The tax is levied on the assessed value of the property. The assessment begins with the classification of property into one of the four classes.

  • Class I includes most residential property of up to three units (such as one-, two-, and three-family homes and small stores or offices with one or two apartments attached), vacant land zoned for residential use, most condominium buildings not more than three stories.
  • Class II consists of all other property that is primarily residential, such as cooperatives and condominiums.
  • Class III includes property with equipment owned by a gas, telephone or electric company.
  • Class IV includes all commercial and industrial property, such as office or factory buildings.

Once the property's class is determined, the appropriate multiplier, called the assessment ratio, for its class is applied to its market value. For Class I properties, the assessment ratio is 6%. For Classes II, III and IV, the assessment ratio is 45%. The end result of this calculation will be the assessment value, on which the tax will be imposed.The rates of the property tax vary for each class.

NEW YORK CITY PROPERTY TAX 2017-2018

CATEGORY
TAX RATE
Class I
20.385%
Class II
12.729%
Class III
11.891%
Class IV
10.514%

NEW YORK CITY PROPERTY TAX 2016-2017

CATEGORY
TAX RATE
Class I
19.991%
Class II
12.892%
Class III
10.934%
Class IV
10.574%

NEW YORK CITY PROPERTY TAX 2015-2016

CATEGORY
TAX RATE
Class I
19.554%
Class II
12.883%
Class III
10.813%
Class IV
10.656%

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