Legal and Tax Tips When Buying New York Property

Interviewed Tim Wong, New York lawyer and accountant, in Legal and Tax Tips When Buying New York Property.  Includes best way to hold property, capital gains, estate, gift, withholding taxes. 

Contributed to Real Estate Weekly's article on proposed pied a terre tax

Real Estate Industry Unanimous In Derision Of Proposed Pied A Terre Tax

By Real Estate Weekly

12:04 PM, DECEMBER 3, 2014 

 

By Dan Orlando

A year after Bill de Blasio won the mayoral election with a promise of reducing inequality, New York City is caught in a heated debate over the benefits of luxury pied-a-terres.

New York property tax discount in new buildings

Property buyers in Manhattan, New York has always discussed the issue of buying in a new building which usually comes with a 421A tax abatement.  The tax abatement basically means for the first 10 years, the new property owner will pay a discounted tax amount.  The tax amount usually increases over 10 years to the full tax amount.

For example, if the full tax amount is $1000 per month, the owner of a new building may pay $100 per month the first two years, $200 per month the next two years etc.

Foreign / Overseas buyer tax rate of Manhattan New York investment property

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.

Capital Gains Tax on Property in Manhattan New York

Primary Residence:The IRS allows a seller to sell his primary residence in which he has lived 2 out of the past 5 years and take capital gains tax free of up to $250,000 (for single) and $500,000 (for married filing jointly).

The 2 years out of 5 years rule does not have to be continuous as long as it was used as primary residence during that time. One way an investor can capitalize on this is to buy property, rent it out and move back in for the last 2 out of five years prior to sale.


Investment Property:
Investment property held for more than 1 year will qualify for long term capital gains tax treatment. This means a maximum tax rate of 15% at the federal level. If held less than 1 year, the maximum federal tax rate is about 36%. However, I strongly discourage buying property with the intention of selling in less than 1 year. Buyers should intend to hold at least 5 years.

Many investors use the “1031 exchange” to defer payment of taxes. This requires exchanging the old property for a like-kind new property within a set period of time. Effectively, this strategy uses funds that otherwise would be used to pay taxes to leverage and buy more property, magnifying the return potential.

We will recommend our preferred CPA and attorney to clients so that they receive the best advice.


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Contact Wei Min at tan@castle-avenue.com on how we can help you grow wealth through Manhattan property.



With the regulatory and legal environment, I need to provide this disclaimer:
The above serves as a general overview, not by a certified tax or legal professional. Always consult a CPA or attorney for tax matters as individual situations differ.