Selling an apartment in the United States requires paying a tax on selling an apartment in the United States. In this framework there is a capital gains tax to pay for the rise of the value of the property. Of course, there are ways to avoid payment or lower the tax.
For this it is advisable to consult with an American accountant. in any case it is important that you also understand what the requirements in the law are on the subject of taxing real estate in the United States, and for this reason the MasAmerica team has put together this guide for you.
What is the tax on selling an apartment in the United States and how is it calculated?
Tax on selling an apartment in the United States must be reported to the IRS which is the American tax authority. The tax authorities see in an apartment a capital property that owes taxes, similar to a car or to any other profit made within the United States.
For tax purposes the gains or losses of the tax – payer are decided by deducting the amount of the investment on the property at the time of sale from the price of that sale that was made. (Of course, after expenses from the sale is taken into account, such as real estate commission).
what is the amount of tax on selling an apartment in the United States?
Calculating tax on selling apartments in the United States can be more complex and complicated than it seems at first. The tax rate depends on many variables including the tax bracket that the pack tax – payer is on, familial status, amount of time that the house was in their possession, and whether it is a property for investment or their main place of residence.
Whoever is selling a house or a property in less than a year from the date of purchase will have to pay a similar tax rate that is taken from regular income, so that they could reach up to 37 percent. Alternatively, a property of residence that is in ownership of the tax – payer for over a year will have to owe a tax rate of 15 percent to 20 percent depending on the tax bracket of the tax – payer.
On this subject it is important to note that the tax is approximated only on the profit itself. For example, if you have purchased a house five years ago for 150,000 dollars and sold it for 225,000 dollars, your profit will be 75,000 dollars.
Take into account that this example is simplified and serves only as an example of the subject, since there are other deductibles to consider such as renovations and additional costs to closing the sale. In any case according to this example you will have to pay tax according to the income bracket you are in.
In order to calculate the taxes, you will have to pay in the most exact way it is recommended to consult with American accountants who are well versed on the subject and could calculate and find out whether you are eligible for a tax break of any kind. You will receive this tax break if the property that you are selling is a first – time living apartment and whether You pass the necessary criteria.
Calculating the investment in property as a way to approximate the tax rate on selling the apartment in the United States
In order to calculate tax on selling an apartment in the United States you must calculate the investment on said property (called the adjusted baseline). Every year the allowed degradation amounts for the property need to be subtracted.
This calculation is correct even if you have not requested any type of degradation in the tax report that you submitted. If you own the property for a length of 27.5 years the baseline will lower to zero and in fact, there will be nothing left to subtract from degradation.
Using the cost of the investment you can calculate anything to do with any refund, for example the price of insurance, or any other payment he received as a result of loss, damage, or theft, as well as any loss or damages that were paid out of pocket and are not covered in the insurance policy.
Consulting and calculating degradations with an American accountant in Israel is important and significant because the calculation of the investment will lower if you accidentally make a mistake in the exact amount of degradation costs in your tax report.
For example, if you request a refund of too much or too little degradation you will have to calculate everything again and subtract that from the general calculation in the case of two little degradation, or add it in the case of too much degradation, which in actuality lowered the amount of taxes owed every year
Ways to lower taxes on selling an apartment in the United States
Capital gains tax could heavily influence cash flow and the bottom line of every household. There are ways to lower the total of a of taxes owed or avoid capital gains tax payments when selling an apartment, according to the type of property and family status.
Following, are a number of situations where paying taxes for selling an apartment in the United States can be avoided:
- Avoiding paying taxes on selling an apartment in the United States that is the primary residence of the tax – payer: It is possible to sell your main residential apartment as a way to avoid paying capital gains taxes on the first 250,000 dollars, if your family status is single, and up to 500,000 dollars if you are married and submitting their request for an exemption together. This request for an exemption can be approved only once every two years. That being said, in order to receive the exemption, you will have to prove that this is your primary place of residence where you have lived for most of the time for a period of at least two years and have been the owners of for at least two years. An American tax consultant can consult on possible interpretations of the law so you could, for example, purchase the apartment live in it for 12 months and then rent it out for a number of years, and then move into it in order to classify it it’s first – time residential apartment for another 12 months. As long as you’ve lived in the house or apartment two years out of the whole that you have owned the place this could grant you a capital gains tax exemption.
- Avoiding capital gains tax on renting or an additional property: if you own an additional property that you are planning to sell you will have to plan ahead of time in order to lower your taxes owed. there are three ways to avoid the tax in this regard: first time residents in a property for rent, swapping residences (When you are selling the property for investment and using the profits to purchase a different similar property), or living in an “opportunity” area, which are areas across the country recognized as financially solid.
The law on foreign investment in real – estate taxation FIRPTA
As part of the complicated tax rules of the United States that have to do with real estate deals in the United States, including taxation on selling an apartment in the United States, there is also a requirement to report on foreign investments in real – estate (FIRPTA).
Purchasing real – estate in the United States by foreign citizens is a primary source of investment in the United States, which is why it is under the real estate taxation laws in the United states.
In fact, the law on foreign investment in real – estate FIRPTA was passed in order to guarantee that foreign investors pay federal income tax as part of the program of taxing the sale of an apartment in the United States.
tax that is collected within FIRPTA is collected at first through deductions, in their requirement to deduct he’s on the buyer, not the seller of the property. but if there is some sort of exemption, the buyer is required to postpone 15 percent of the amount of the total purchase if the seller of the property is a foreign citizen.
Receiving a tax exemption on selling an apartment in the United States and the foundation of the FIRPTA law
The three most common exemptions of the FIRPTA are when:
- The seller pays taxes in the United States (a citizen of the United States who is a green card holder).
- 15 percent of the original tax deduction is higher than the maximum amount of taxes owed. In this case the seller can submit a request to approve deductions to lower the deduction to the maximum amount of taxes owed.
- The total sum of the sale does not exceed 300,000 dollars and the seller plans to reside in the property for at least half of the time during the first 24 months after closing the deal.
In summation
Tax on selling an apartment in the United States could be very significant to the profit margin of many households since the taxes could reach significant amounts. Luckily, the law for reducing taxes for taxpayers in the United States since 1997 provide certain exemptions for homeowners who fit the income tax criteria.
An exemption of up to 250,000 dollars of the capital gains can be given for individual tax reporters, and tax submitters who are married and are submitting together can receive an exemption of up to 500,000 of the capital gains. in order to calculate the exact amount of tax owed for selling an apartment in the United States, consult with American tax consultants.
There are exceptions for different situations such as divorce, for example, in a way that the law is up for interpretation within in the possible legal margin. Understanding the different rules of taxes on selling an apartment in the United States will help you better plan for selling your property.
