Every locality in the US is governed by two tax laws: Federal and state.
Federal taxes apply uniformly throughout the United States. Meanwhile, each state has its own tax laws, but in general, except for a few special states, most states have similar taxes and tax rates.
I take the state with the largest population and economy in America, California, as an example.
First of all, it must be determined that when buying both residential and commercial real estate, the buyer does not have to pay sales and transfer tax. There is no such thing as buying with cash and paying higher taxes.
Buyers usually only have to pay procedural fees to the transfer legal service company (escrow). These fees are small, on average about 1,500 USD if buying a house for about 300,000 USD (0.5% of the selling price).
However, if buying with a bank loan, the borrower will have to pay a fairly high loan fee, about 2-4% of the total loan amount.
Many people confuse real estate tax (land tax) and transfer tax. Home buyers do not have to pay transfer tax, but in some cases, the buyer may have to refund the real estate tax that the seller paid in advance for the home.
For example, the seller has paid for the house all year, but the sale documents are completed on July 31, so you will have to pay back 5 months of taxes (from August to December) to the seller. Conversely, if the seller has not paid taxes this year, the seller will have to pay the buyer the missing tax, because the new owner will be responsible for paying that tax.
Real estate taxes are from the state and provincial and city governments (county and city), collected to pay for the local education, transportation, security system...
In California, real estate taxes average about 1.2% per year on the value of the property, usually based on the purchase price. In some special areas, there may be additional taxes and fees such as infrastructure development taxes (mello-roos), residential association fees (HOA).
When deciding to buy a property in the US, you should ask your real estate agent about this information.
Note that real estate tax applies annually to all types of real estate, regardless of whether it is used or not. If the owner does not pay, the tax debt plus interest will be attached to the property and will be recovered when the property is transferred.
Among the fixed costs that must be paid annually, there is also a fee for public services such as trash disposal and street cleaning, called the utility bill. This fee averages about 60-80 USD for a house (if an apartment is cheaper).
Generally, a $300,000 home in the US is subject to an average monthly fixed tax and fee of about $400, whether you use it or not.
This tax also applies to commercial real estate such as office buildings, stores, hotels, rental apartments, etc. If you rent this house, you will have to pay income tax every year. .
Both federal and state income taxes range from 12-20% of net income (Net Income, i.e. rent minus all expenses). If you buy a house but do not rent it out, and the house does not generate income, you are not subject to this tax.
If you borrow money from a bank, the loan interest will be deducted from the profit earned; Therefore, the tax payment will be lower.
Regarding taxes for home sellers, as I said, buyers do not have to pay taxes when transferring; But the seller, in addition to the procedural costs of about 0.5% of the selling price, will also have to pay income tax, if there is a profit.
There are several rates of capital gains tax, depending on the seller's circumstances and the nature of the business assets. In general, it is about 12-18% of the net profit value (net profit - the selling price minus the purchase and sale costs and all maintenance, repair and renovation costs throughout the life of this asset).
If you invest in multiple houses, the profit of one house can be deducted from the loss of the other house...
For foreigners, the transfer legal service company (escrow) will withhold 10% of the sale proceeds from you for income tax purposes. After you complete your tax return, the escrow company will pay this tax and return you the rest.
As I said in the article Can Vietnamese under 18 years old buy a house in the US?, this is the only notable difference in buying and selling houses and real estate in the US between foreigners. and local residents.
Americans do not have 10% withheld, but they will have to declare and pay this tax during their annual tax return.
Americans can avoid this income tax if they prove that the house sold is for residential purposes. A supplemental tax law allows an American couple, when selling a home that is used as a home, to claim a net gain of $500,000 or less tax-free.
The standard to consider an apartment as a house is that the homeowner has lived here for 2 years within 5 years before selling.
