Saturday, March 6, 2010

Capital Gains tax New York property II

Capital gains tax on Manhattan, New York property is high.  Yes it's higher than in Hong Kong, Singapore, Malaysia.  And a list of other countries.  But probably not as high as tax in many western European countries.

Long term capital gains tax for investment property (held more than 1 year) is 15%.  For foreigners, it depends on how it's structued but can be as high as 30%.  Then why invest in New York since capital gains taxes are high?  

The best reason is lower volatility.  New York property prices are less volatile and speculative especially when compared to China and Hong Kong.  There, a much larger percentage of the population is "gambling" on property on the side.  This consistency in holding it's value resulted in New York's property appreciating 10% per year from 1997 to 2009).  Instead of the ups and downs experienced by the stock market and other countries' property markets.  (refer annual return on Manhattan apartment article).

The US government also allows depreciation of annual operating income.  This often wipes out taxable income.  Also, using the 1031 exchange, investors can defer tax payment by exchanging one property for another. 

The best thing for an investor to do is to look at the AFTER tax appreciation when comparing different cities for property investment.  This removes the why your tax rate is higher than my tax rate issue. 

When I compared the annual return of Manhattan property vs the Dow, it occured that nobody in the news ever mentioned that the Dow increased a measly 2% per year from 1997 to 2009.  Of course, the financial media needs to be careful because the advertisers will not want that fact shared.

Same with property. Look at the after tax returns.  Whenever I return to Malaysia, people keep talking about the zero capital gains tax.  OK, what was the appreciation rate?  A 15% capital gains tax on a 10 percent appreciation in New York is better than 0 percent capital gains tax on 6% appreciaiton.  Agree?

Capital gains tax New York Property.

Capital Gains tax on Manhattan New York Property I
Overseas buyer tax rate on New York property

Disclaimer:  Advice above not provided by a CPA.  Always consult your CPA on tax related matters.

No comments: