Selling Queens real estate can be a very complicated process—just as complicated as purchasing real estate in Queens—particularly from the perspective of taxes and exemptions. So, the following is a list of various potential queens real estate taxes and exemptions that Queens home owners should be aware of when deciding to sell a home, coop, or condo in Queens. For your reference, we’ve included a brief summary of each, however, we always encourage speaking with a tax professional for information more accurate to your specific situation. If you have any questions, let us know and we can reach out to one of our CPA partners to see if they can help…
Taxes for Investment Properties
Many people find investing in real estate i.e. purchasing property for the sole purpose of investment, to be extremely advantageous. One of the most significant pluses is the fact that all mortgage interest paid on investment properties is fully deductible. There are some down sides, however, the largest one being that the loan origination fees and points he or she might have paid in order to lower the loan’s interest rate can’t be deducted.
The interest on loans that were used to purchase, construct, or improve upon the property are deductible up to $500,000.00 for single tax payers, and $1,000,000.00 for married couples. The interest accrued on home equity loans can be deducted up to $50,000.00 for individuals and $100,000.00 for married couples.
When you sell a Home, Coop, or Condo in Queens, you will be subject to paying Transfer Taxes at the time of closing. There are two transfer taxes that you will be responsible for paying:
- New York State Transfer Tax – $4 for every $1,000 of the sale price or .4% of the sale price
- New York City Transfer Tax – 1% for sale prices up to $499,999 and 1.425% for sale prices $500K and up
When selling a property near the $500K mark, it’s important to keep in mind that you pay .425% more in taxes if the sale is $500K+.
Capital Gains are the profits that occur as a result of the difference between selling and purchasing price, on which sellers of a primary residence are taxed. The amount can vary based on a number of considerations, such as whether or not someone is a resident of the United States, and the current condition of the property. Deductions from Capital Gains include the fees for the loan application, closing costs, and the points that were paid for the loan to get a lower interest rate for the mortgage.
Generally, however, the taxes are 15% for residents of the United States who live in New York State. In addition, approximately 10% is added for city taxes. Some individuals will be able to qualify for not having to pay Capital Gains. If the house was the seller’s primary residence for 2 (at least) of the last 5 years, the Capital Gain can’t be over $250,000.00 for a single person or $500,000.00 for a married couple.
Capital Gains are reported on Schedule D of the IRS form. If the property has been owned for 1 year or less than 1 year, the owner reports it as a short-term Capital Gain. If he or she has owned it for longer than 1 year, it is a long-term Capital Gain. It is most advantageous for an owner to live in his or her residence for more than two years before selling it, because if they do, they will have more time to reinvest the Capital Gain from their home’s sale.
Taxes for Corporations
An LLC is a company formed between people who want to form a partnership in order to accomplish a specific project, or a few specific projects, without necessarily wanting to tie themselves to one another permanently or more lastingly. Purchasing a property is a perfect example of a situation where multiple partners may want to join together for one specific purpose. LLCs provide their partners with added protections and benefits, which makes it even more enticing to many people. One major advantage is that when the property is sold, the partners can, if so desired, transfer the property’s title to the LLC, which allows them to avoid taxes on the sale. After purchasing a new piece of property, the partners transfer the title to one of the partners so that it is in his or her name.
There are a number of situations in which tax exemptions are possible. If someone owns a home as his or her primary residence for at least two years but then has to sell due to an unavoidable circumstance that makes relocation necessary, such as a new job or health reasons (including when a person must sell his or her home in order to raise money for the medical expenses), a tax exemption is possible. In the case of health reasons, it’s advisable but not necessary for someone to keep a physician’s letter on hand, that describes personal information regarding the health problem, in case one is audited at some point.
One can qualify for a tax exemption due to “unforeseen circumstances.” The IRS defines “unforeseen circumstances” as “the occurrence of an event that you could not reasonably have anticipated before buying and occupying your main home.” Some examples include the ones listed above, as well as war, terrorism, natural disasters, separation or divorce, death, multiple births from a single pregnancy, and a change in employment status, leaving the owner unable to pay for his or her living expenses. IRS Publication 523 describes “unforeseen circumstances” in great detail.
As far as Capital Gain goes, as of 2003, there is a special provision provided to people enlisted in the army, navy, and National Guard that states that people in the military do not need to have lived in their home for two years. Additionally, the 5 years one has to have owned the property for has been extended to 10, which allows people to fulfill their military obligations.
Another way to avoid Capital Gains is for one to buy a “like-kind” property, i.e. a home of equal or greater value than the property that was sold, usually within 180 days of selling the previous home. This is called a 1031 Exchange. If one pursues this option, forms must be filed with the IRS to make them aware of the purchase and the property must be located within the continental US.
*Consulting an accountant on which, if any, of these exemptions you might apply for, is key.
Blog and site courtesy of George & Abigail Herrera, Realtors and Co-Owners of the Queens Home Team at Keller Williams Realty Landmark II.