Taxes,

     Taxes

         and More Taxes...

 

 

The inevitable costs of living in today's society.   Oliver Wendell Holmes, a former Supreme Court justice, once said that "taxes are what we pay for a civilized society."  The federal income tax was permanently instituted in the United States in 1913 with the passage of the 16th amendment.  According to Black's Law Dictionary, a tax is a "pecuniary burden laid upon individuals or property owners to support the government [...] a payment exacted by legislative authority." It "is not a voluntary payment or donation, but an enforced contribution, exacted pursuant to legislative authority" and is "any contribution imposed by government [...] whether under the name of toll, tribute, tallage, gabel, impost, duty, custom, excise, subsidy, aid, supply, or other name."

 

Below are helpful info on taxes:   Mansion Tax, Real Estate Transfer Tax, Exclusions of Capital Gain Tax, 1031 Exchange, 3.8% Tax,

                                                       Lender Forgiveness, Other Articles of Interest.

 

Mansion Tax

 

The New York Mansion Tax was instituted in 1989 by Governor Cuomo in 1989.  It was designed to be a surcharge for the wealthy.  Of course back in '89, a million dollars really did purchase a mansion; but now with today's inflation, we have changed how we look at a million dollars.  New York Tax Law, Section 1402-a, imposes a 1% tax upon the buyer in the purchase of residential one, two or three family homes (including condominium or cooperative units).

 

There is a little catch for today's buyers.  If the Buyer is paying the transfer tax at closing, this cost is ADDED to the purchase price.  If that addition exceeds the million dollar mark, then the mansion tax is owed.  So selling at $999,000 won't always work for the buyer!

 

By law, the buyer pays the transfer tax; but the purchase contract can state otherwise.  Should the seller, agree to pay the transfer tax, then the sale's price for the buyer will not be reduced by the amount of tax paid for purpose of figuring the capital gains tax and real estate property tax.

 

There is good news, however.   The mansion tax is considered part of the property's basis for calculating capital gains tax.  For example:  The buyer later sells his million dollar property for two million.  He and his wife purchased it for a million dollars, did upgrade features of $400K (not repairs), and had a $100K mansion tax applied at the time of purchase.   They can now adjust their basis of $2M sale less $1M it costs, less the $400K, less the $100K mansion to equal at capital gain of only $500K.   Also, note if they lived at the property as a primary residence for over two years, they are exempt from capital gains up to $500K married, or $250K single. (more on capital gains on home sales)

 

Did you inherit or was gifted a mansion?  No mansion tax applies.

 

Are you buying a property that includes furniture in the sale?  Perhaps think about making the sale of the future as a personal property sale.   Paying a sales tax instead of a mansion tax, might be beneficiation. 

 

No, the mansion tax is not deductible on the buyers' federal income tax returns. ALWAYS, check with your CPA/Accountant to make the wisest choice when purchasing.
 

 

Real Estate Transfer Tax

 

As quoted from http://www.tax.ny.gov/bus/transfer/rptidx.htm "

 

"New York State imposes a real estate transfer tax on conveyances of real property or interests therein when the consideration exceeds $500.

 

Tax rate

 

Tax is computed at a rate of two dollars for each $500, or fractional part thereof, of consideration.

An additional real estate transfer tax (sometimes referred to as the "mansion tax") of 1% of the sale price applies to residences where consideration is $1 million or more.

 

Who pays the tax

 

The tax is paid by the grantor (seller). However, if the grantor doesn't pay the tax, or is exempt from the tax, the grantee (buyer) must pay the tax.  The additional 1% real estate transfer tax is paid by the grantee. If the grantee is exempt, the grantor must pay the tax. 

 

File and pay tax

Nonresident filing requirements

 

Nonresidents must compute the gain (or loss) and pay any estimated personal income tax due from the sale or transfer of certain real property, including cooperative units. Nonresidents who don't qualify under one of the exemptions shown on Form TP-584, Schedule D must present one of the following forms to the recording officer or directly to the Tax Department at the same time Form TP 584 is filed:

 

 

Exclusions of Capital Gains Tax

 

$250,000 Exclusion on the Sale of a Primary Residential Home*

 

Individuals can exclude up to $250,000 in profit from the sale of a main home, or $500,000 married, as long as you have owned and lived in the home for a minimum of two (2) years.   The two years do not need to be consecutive.  In the 5 years prior to the sale of the house, you need to have lived in the house for at least 24 months in that 5-year period.

 

You can use this 2-out-of-5 year rule to exclude your profits each time you sell or exchange your main home. Generally, you can claim the exclusion only once every two years. Some exceptions do apply.   An example of an exception might be selling your home because of job relocation, health concerns or other unforeseen issues.  You may be able to exclude a portion of the gain for those qualify exemptions (see IRS Pub 525, Selling Your Home).  Remember, ALWAYS check with your qualified Accountant/CPA. 

 

*  (Main home can be duplex, condo, boat or mobile home; as long as it has eating, sleeping & toilet facilities.)

 

 

  1031 Exchange

 

Section 1031 of the Internal Revenue code provides that no loss or gain can be recognized on the exchange of property held for productive use in a trade or a business, or for an investment.  A 1031 exchange allows a property owner to trade one, or more, properties for one, or more, replacement properties of "like-kind" and defer the payment of federal income taxes and in some state taxes until the property is eventually sold outside of an exchange.   To learn more about 1031 "Like Kind" Exchange visit our article (click here).

 

 

2013's New 3.8% Tax

 

 

2013 brings in a new tax on net investment income for couples with adjusted gross income above $250,000 (or $200,000 for singles).  This tax can apply to gains from a sale of a home.  In cases where the gain is greater than the home's cost, plus improvements, plus the $250,000/$500,000 break, the tax will affect only the amount above the benefit; but capital losses can be used to offset such gains, if they are available.

 

 

Lenders Forgiveness

 

When the mortgage lender forgives the mortgage debt, ordinarily the amount forgiven is treated as taxable income. In 2007, the government exempted up to $2 million of forgiven debt per taxpayer. The exemption lasts through 2013. Taxpayers can claim it on IRS Form 982A few exceptions do apply.

 

 

Other Articles of Interest (click here)

 

 

Disclaimer:  All information provided above is provided for general entertainment use only and ACHR is not a qualified accountant or CPA.  Before making any decisions on your tax issues, always contact a qualified accountant/CPA.    ACHR is not responsible for any tax decisions you render from our web site.

 

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