Taxes USA: Buying real estate – Taxes, property tax etc. for house, apartment & land

USA – What taxes do you have to pay when you buy a house in the USA? Below you will find a list of all the types of taxes you have to pay, how much they are, where you can read more about them and what they are used for. Everything you need to know about the taxes associated with buying a property, be it your home or a vacation home. We answer the questions, what are “transfer taxes”? How much is property tax when you buy a property? Here are the answers.

What taxes do you have to pay when buying a house in the USA?

Buying a home is a massive investment, and most people are surprised by the many additional costs. In order to understand all the additional costs that come with buying a home, you need to understand taxes. This means that the three types of taxes listed below are all necessary costs that you must pay to the government in the area of the home you are buying.

Tax prepayments

When buying a home in the United States, you usually have to pay 6 months worth of property taxes up front when you buy. That is, six months worth of property tax, called prorated. However, when you buy the property, there are only three taxes. That makes this pretty easy to understand. Property Tax is the tax an individual must pay annually for owning property, Transfer of Ownership Tax is the tax on the purchase of the home, and Mortgage Registration Tax (where it exists) is the tax on the registration of the mortgage. Many of these taxes can be deducted from your federal tax bill.

Do you have to pay sales tax?

No. Under federal law, real property, such as homes, property, or land, is not subject to “sales tax.” Although, in some states, there is a sales tax on items that can be interpreted as a home (e.g., a mobile home).

Taxes you need to know

These are the taxes you need to know about when paying for your home. How each of these taxes is calculated depends on the city, county, and state where the property is purchased. The three relevant taxes that apply when you buy a home are the property tax, the transfer tax, and the mortgage registration tax. Not all of them exist in all states, and there are many subtleties to consider.

Real estate taxes (= property taxes)

Among the many types of taxes in the United States, Property Taxes is one of the most misunderstood. It is a tax paid annually on the ownership of property or other items. However, it is an essential part of the tax bill and understanding how it works is a must for any property owner or anyone interested in buying property. So here we answer the questions: what are Property Taxes? What items that are taxed in Property Taxes? In which state do you pay a lot of Property Taxes?

Property taxes are ad valorem taxes that you pay for owning property. Generally, this property consists of land as well as anything permanently attached, such as real estate, but also roads, docks, pools, etc. In some states, property taxes even include items such as boats. When buying a home, these must be paid up front and then recovered from the seller. Property tax is usually a rate that is multiplied by the assessed value of the property. This value is estimated by an appraiser and takes into account location, age, etc.

Average US real estate tax: 1.11%

Property Taxes, like other taxes, are levied once a year for U.S. citizens on April 15.

Which properties are taxed under Property Taxes?

Property Taxes are often confused with a tax on real property. However, this is a misconception. The majority of Property Taxes are levied on real estate because this is the most expensive property that most people own. However, Property Taxes can also be levied on aircraft, computers, furniture, etc. In addition, Property Taxes consist not only of the house or building itself, but also the land and any other property that is permanently attached. This means that wharves, for example, are also taxed in Property Taxes.

How much is the property tax?

Property Taxes are considered ad valorem taxes, which means that they are based on the monetary value that is estimated to be attached to an item, land, property, etc. The basis for the calculation is the property appraiser. This is based on the estimate of how much it would cost to purchase that item in that year, which is based on market value, location, condition, acreage, etc.

Usually there is a tax rate for the specific location that is affected by local, state and federal laws. This tax rate is multiplied by the assessed cost or value of the property. For example, in California, where the property tax rate is 0.77%, if you pay for a property valued at $100,000, you will pay $770 to the IRS.

Transfer taxes (=Transfer Taxes)

Transfer taxes are real estate transfer taxes. That is, a tax paid on the transfer of title to a property from the seller to the buyer. It falls under the category of ad valorem taxes. Real estate transfer taxes are usually based on the cost of the property when it is sold. In other words, they are a tax on the sale of the home. Some states describe them as a fee for the work necessary to complete the documentation of the new property.

Average US transfer tax: 0.6%

These are often perceived as one of the more complicated taxes because the tax rate varies not only from state to state, but also from county to county and city to city. For example, in New York there are New York State (0.4%), New York City (1.4%), Mansion (1%, only if you buy a house > $1 million) transfer taxes. That means if you buy a house for $1 million, there is a total of $28,250.

In short, these taxes require US home buyers to pay a certain amount to the IRS when purchasing a property or land. There are many details as each state has unique tax structures, some have no transfer taxes, etc. Below is a brief summary of everything you need to know about real estate transfer taxes.

Your city, county or state may impose a transfer tax, which is a transaction fee on the sale of any property. Depending on your location, either the seller or the buyer may be responsible for this payment. The rate varies by location. In the U.S., this variation occurs between states, between property types, and across county and municipal boundaries.

Transfer taxes are controversial, with many supporting them as an effective way to raise government income by infrequent and comparatively small amounts. They are criticized for being regressive (i.e., disproportionately burdening lower-income households), for being unpredictable, and for being difficult to understand, among other reasons. The National Association of Realtors has taken an official position against this tax.

Who pays the real estate transfer tax in the USA?

In most cases, it is customary for the seller to pay the real estate transfer tax. Nevertheless, this figure often becomes part of the negotiation process. Furthermore, since there is no law stating that the seller must pay the tax, this figure is variable. If the seller is exempt from paying a real estate transfer tax, the buyer is forced to pay it. Sometimes, such as in Washington DC, the tax is split 50/50 between the seller and buyer.

When do you not have to pay transfer tax?

You don’t have to pay transfer tax if….

• Transfers to children and grandchildren
• Transfers on the basis of a lawful divorce
• Transfers to joint tenants after the death of one of the parties
• Transfers of cemetery plots

Mortgage registration tax (= Mortgage Taxes)

There are some important taxes to consider before buying a home. This tax, also known as the mortgage registration tax, mortgage recording tax, or document stamp tax, is one of those sneaky fees. A real estate agent is often tasked with taking these taxes into consideration, but it’s important that any home buyer is aware of the taxes involved in buying a home. Keep in mind that Mortgage Tax often falls into the same category as Transfer Tax, but is not identical to it.

This tax is based on the amount of debt secured by obtaining real estate. It is a tax assessed by the state and paid to the places where the mortgage is documented and recorded. If the buyer wants a mortgage, they pay the mortgage registration fees. In Minnesota, there may be an additional tax such as an “Environmental Response Fund Tax”. The 7 states that require a mortgage tax are Alabama, Florida, Kansas, Minnesota, New York, Oklahoma and Tennessee.

Average US mortgage recordation tax: 0.2%-.4%

How is the Mortgage Tax calculated?

Every state has a Mortgage Tax. The mortgage rate is easily calculated by multiplying the interest rate at the property’s location (be sure to follow state and county regulations!) by the amount included in the mortgage. Also, be sure to round up mortgage taxes.

For example, in New York State there is a Mortgage Tax of 1.05%. This means that taking out a mortgage in New York with an interest rate of 1.05% and a mortgage worth $500,000, costs $7,500.

Mortgage Tax = Mortgage Tax Rate x Total Mortgage Amount

It is possible to reduce Mortgage Tax by “Assignment Transfer”. In short, the borrower transfers the assignment of the mortgage to a new company, whereby the original tax is transferred and therefore does not have to be paid.

New York – Mortgage Tax

• Name: Mortgage Tax
• Rate: 1.05%
• Exemption: possibility of $30 if the “property in question is or will be improved by a one- or two-family dwelling.”

Additional fees when buying a home?

Everyone knows that when you buy your home, you pay money to another homeowner as part of your mortgage interest for a long time. You probably also know that there are some fees that you have to pay to a realtor if you have hired one. However, there are many additional fees that you can expect to pay on top of that. In general, you can roughly estimate that these costs are usually between 3 and 6 percent of the total purchase price of the home.

People like to refer to all of these costs as closing costs, but strictly speaking, closing costs are any costs incurred at a point of sale of a property that are not part of the property’s base value. However, this does not include furnishings or mortgage insurance, for example. This includes any additional closing costs as well as additional fees you may incur when purchasing a property.

All fees – List

Below, we highlight what fees a buyer must pay, who pays them, and why they are paid. Here we list the most important ones:

Serious money

The first expense you incur when buying a home is called “earnest money.” This is a form of down payment, a deposit made by a prospective buyer that demonstrates the seriousness of their intentions to purchase. It is usually paid to a broker or agent and held in escrow until the purchase is completed. Later, it is used to pay the down payment or closing costs.

That is, unless the deal fails and it is determined to be your failure. If it is not, and the deal fails for reasons beyond the buyer’s control, the money is refunded to the buyer. Typical “earnest money” deposits in the US range from $500 to $2,000.

Between $500 and $2,000

Down payment

Everyone has heard of down payments, and it’s important to understand them. A down payment is a portion of the total price of the home that you pay at the point of sale. Since most people can’t pay the entire amount of the property at the point of sale. It usually works like this: An individual pays a down payment to the seller of a property. A financial institution, such as a bank, pays the seller the balance and receives scheduled payments from the buyer. These scheduled payments are part of a mortgage, read more in our article

How much is a down payment?

In the U.S., rates vary, but the typical rate is 20%, with 5% or less being rare but still possible. The higher the percentage, the less the individual will typically borrow from the bank and therefore the lower the interest on the money needed to repay it. Furthermore, the more that is paid, the lower the amount on which interest is charged. For example, if the interest rate is 20%, you will pay less if it is 20% of $200,000 than if it is 20% of $800,000.

Mortgage Insurance

Mortgage insurance, not to be confused with mortgage tax, is insurance that you will be able to pay your mortgage. Typically, this is only required if you make a down payment of less than 20% of the original purchase price. Also called private mortgage insurance or mortgage insurance premium (same thing, but if you get a mortgage through the Federal Housing Administration). In addition, those who obtain a loan through the Department of Veterans Affairs do not have to pay any mortgage insurance.

How much is the mortgage insurance?

Mortgage insurance rates typically range from 0.55% to 2.25%. This percentage is calculated as a proportion of your loan. For example, a loan totaling 2 million with a mortgage insurance rate of 2% is $40,000. Additionally, these are usually paid annually.

Furnishing – critically underestimated

In fact, setting up your furniture is an often underestimated part of buying a new home. Although this is irrelevant to those who just want to spread investments, it can be a significant amount of money for homeowners. The cost of moving into a new home can average up to $35,000. Moving costs average between $1,100 and $5,630 for the average homeowner, and for those buying properties in the millions, this sum is much higher. This includes a thorough professional cleaning of the new home, hiring movers that can cost up to $50/hour, which adds up to thousands. Then moving supplies like blankets or paint to paint walls as well as hiring painters. The list goes on.

For real estate investors who want to rent out their property, the costs are even more substantial. With sums of $10,000 expected for an unfurnished home, homebuyers often do not factor this into their expected costs.

Discount points

Discount points are also known as mortgage points, upfront points or simply points. These are not compulsory, but if paid for, offer significant benefits as there is no low interest rate on the loan. The buyer pays a certain amount to the seller, which then allows the buyer to lower the interest rate on their mortgage. These can be used in a similar way for conventional or government loans. If you invest in a discount point, you can lower your interest rate by 1%.

1 discount point = 1% less interest

When you can buy discount points

It is beneficial for a buyer to invest in discount points when two factors apply:

The buyer intends to own the property for a long time, which means the interest will be paid for a long time. A discount point would then mean that leasing dollars would be paid every month, and over many years it would be worth it.
If you intend to pay off your mortgaeg in the allotted time period or longer. For people who intend to pay off a 10-year mortgage in 5 years, for example, a discount point would be worthwhile.

Deposit fee

This is a fee paid to the title company, escrow company, attorney, etc. who helped the buyer close the sale. As with most other closing costs, this is a percentage of the sale price. Often the value of this is split between the buyer and the seller.

This fee goes to the escrow agent who helps you close. It can vary depending on the purchase price of the home, but it is paid to the party handling the closing: the title company, escrow company, or an attorney, depending on state law.

Title search fee

The title search fee is another closing cost. It pays for the work that the title company (an organization that the buyer has typically hired) does to ensure that there are no ownership issues or disputes in the past. This is one aspect of closing costs where it is quite easy to reduce costs by investing time to identify quality, low-cost companies.

Fees for surveys/appraisals

You will need an official and registered survey and valuation of a property for the lender. If an existing survey of the property you wish to purchase cannot be obtained, a new survey will need to be done to determine the exact boundaries of the property. This usually costs about $500. For the appraisal, you will pay a certified appraiser to determine the value of the home. Most lenders require this, this usually costs between $300 and $400.

Property tax

Property taxes must be paid pro rata at the point of sale. This means they are included in the closing costs. For a complete overview of these and other taxes, such as the notarization tax (also called the notarization fee or certification fee), see the full article

Origination fee/loan Origination fee

This fee is part of the mortgage closing costs and covers the administrative costs of processing a loan and is usually 1% of the loan amount. Some lenders do not charge this fee, but instead have a higher interest rate. It’s important to know that these fees can often be itemized in your final statement.

Homeowners insurance

Just like property taxes, when you buy a home, you have to pay a prorated share of homeowners insurance. This means that you have to pay up front for a certain period of time. This period is usually one year. As you pay the insurance premium, the cost depends on the home insurance policy

Attorney fees

These will not be necessary everywhere or for every purchase. Some states require an attorney to oversee the purchase of the home, and in some situations the buyer may want an attorney for other reasons. These attorneys, of course, take on fees, and if you are buying a property, you will have to pay them.

Title Insurance

Title insurance is designed to protect both the lender and the buyer from claims. These claims can be against the house in the case of the lender and against previous contractors making claims in the case of the buyer.

Lender’s Title Insurance

Lender’s title insurance is a one-time fee paid at the time of closing. It is paid to the title company to protect them in the event of a title dispute, such as if a lien arises that was not identified during the title search. This fee is usually between 0.5 and 1% of the loan amount.

Title insurance

This is an optional fee. Although you may very much regret it if someone questions the ownership. Therefore, although it is not mandatory, it is done by almost everyone and in any case highly recommended.

Broker fees

Brokerage fees are probably the first thing people think of when they think of closing costs. These are also called broker commissions or real estate commissions. These are often paid by the seller, but they are usually part of the negotiation as well, so in a sense, they are paid by the buyer. These are the fees paid to the agents of a real estate purchase. These agents are usually the estate agent (i.e. the seller’s agent who offers the property) and the buyer’s agent (who finds, organises etc the property for the buyer). The fee is usually between 5-6% of the purchase price, which means an additional cost of up to $60,000 if you are buying a property worth $1 million.

Tax break real estate USA – Money Saving Simply Explained

Local tax relief

As mentioned earlier, because of the complicated tax systems in the US with individualized tax structures for individual states, counties, and municipalities, you are likely eligible for many more tax breaks. For example, in California, local property tax breaks are included on a property if it is your primary residence, for veterans, seniors, etc. Another example is the homestead benefit, where some states reduce the taxable portion of the value of your property if it is your primary residence.

Real estate taxes – How to save

As a homeowner or land investor, saving money on your tax bill is the first way to cut costs. There are fewer easier ways to make money or reduce costs than simply getting them from institutions you pay bills to. Whether it’s getting money directly from the government or simply paying less, it’s an important part of being a knowledgeable investor and homeowner.