Perhaps the first question foreign or international investors ask about buying Manhattan New York property is the tax rate. Understandably, countries like Hong Kong and Singapore have low tax rates and people hear horror stories about the high taxes in New York. This is why having a great team is crucial in your efforts for wealth creation. Anyway, here is the summary:
Capital Gains Tax:
Long term capital gains tax (for property held more than 1 year) is 15% for US residents. For foreigners, it can be as high as 30 percent. However, there are ways for a foreigner to qualify for US resident status and hence get the benefit of the 15 percent long term tax rate. This is where we would recommend our foreign clients to the right attorney and CPA to properly handle tax strategy.
Annual Operating Tax:
The US government allows depreciating property every year. In Manhattan, 40 percent downpayment is typically required for rental income to offset carrying costs. Hence, assuming breakeven cashflow, the depreciation allowance would usually result in a NEGATIVE taxable income every year. This means no taxes for the owner. However, depreciation would have to be recaptured at time of sale and a different tax rate is applied.
This is a biggie. Foreigners who pass away will have their estate taxed at about 46%. To avoid this hefty tax burden, a tax strategy of combining a domestic LLC and foreign corporation ownership is needed. Again, we will refer our clients to the right attorney and CPA to handle these matters to ensure wealth is retained.
Have the right team on your side. Real estate agents are dime a dozen and it's easy to retain the wrong team. And see your wealth sizzle away because of lack of expertise.
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Since I'm not an attorney or CPA, this disclaimer is needed. The information furnished above is not by a qualified attorney or CPA. It is not a representation, guaranty or qualified opinion. Always consult your CPA or attorney on tax matters.