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Real Estate Taxes & Consulting

Real Estate Transfer Taxes?

Buying a house is quite expensive. There are additional costs attached to it. You would think that selling a house would be a breeze, but it’s not.

There are also expenses involved in selling a house. There are closing costs and real estate commissions to be paid by either the buyer or seller. There are also attorney’s fees to consider.

Here’s another one: real estate transfer tax.

Every state has a different regulation when it comes to real estate transfer tax. In most cases, the seller of the property will pay for the transfer tax. In some, transfer taxes are not imposed.

What are real estate transfer taxes?

Also known as a “deed transfer tax”, this is a one-time fee levied by the state or local authority during the transfer of the property from the seller to the owner.

The cost depends on the value of the real property.

The basic tenet is the higher the sale price of real estate, the higher the percentage of the real estate transfer tax.

Government jurisdictional agency imposes the transfer tax. It could be the state, country or city, but mostly the local governments.

How is the real property transfer tax different from estate tax, property tax and gift tax? One can easily confuse these four taxes but they are actually distinct.

Estate tax is imposed on assets that were handed down to the heirs after the owner’s death. When the value of the assets is over $11 million, the tax will be imposed by the state. Some states also refer to it as inheritance tax.

Property tax, on the other hand, is a recurring levy imposed on properties. It is one of the sources of income among local governments.

The gift tax is imposed on a property that was given freely. The property has to be valued at a certain amount to be levied the gift tax. This is typically imposed following the estate planning.

Meanwhile, the estate tax is imposed upon death based on the owner’s will. The gift and estate taxes are similar to the real estate transfer tax but with distinctive charges and limitations. They are also paid to the IRS.

Distinction.

The real estate transfer taxes are levied on actual transfer of the real estate and usually between the property owner or seller and a third-party buyer.

Each state has different tax regulations. The amount is also based on the value of the property.

As an example, note the different real estate transfer taxes based on a house that’s worth $500,000:

Colorado – $50

Florida – $3,500

New York – $2,000

North Carolina – $1,000

That’s how stark the differences are among states. This is actually something to consider when buying a house.

Still, there are other states that don’t impose a real estate transfer tax at all:

Alaska.
Idaho
Indiana
Kansas
Louisiana
Mississippi
Missouri
Montana
New Mexico
North Dakota
Texas
Utah
Wyoming

Most of the counties in Utah, too, don’t levy transfer tax.

In most cases, it is the seller that is saddled with the real estate transfer tax. But as the states have autonomy on this, there are instances when it varies.

In Pennsylvania, for example, the tax is divided between the buyer and seller. In some areas, the buyer also pays for it.

Although, the buyer and seller can make a deal regarding who pays for this or if they want to split it. The provision will be included in the contract.

Real Estate Investing to Alleviate Economic Difficulties

Who hasn’t been affected by the coronavirus? No one! Everybody experienced something from the coronavirus. Some were infected by SARS-CoV-2, the virus that causes COVID-19, while others were emotionally affected by it. Some experienced psychological turmoil. 

There is one thing, though, that everybody uniformly experienced from the COVID-19 pandemic: everybody was economically hit by it. Yes, everybody! Even rich people and large corporations. Fortunately for them, they have a lot of funding to get them through the pandemic. 

However, some of these wealthy individuals and companies had to let go of some employees. There was a time when economies all over the world were halted in a bid to stop the spread of the virus. People lost their jobs. In the US, 40 million people apparently claimed unemployment assistance from the government. 

Lessons from the pandemic

The COVID-19 pandemic taught people the importance of having savings and investment. In case the world turns into shambles again, at least there will be a cushion fund so that one doesn’t have to depend on government aid. 

This cushion can be created through the passive income via real estate investment. Not only can this allow people to have their own savings in case of another similar situation to a pandemic when there is possibility that income will be gone, it can also be used in retirement. 

First, what is passive income? It is money that a person earns with little effort on their part. Unlike with work, a person really has to make a lot of effort in order to earn money. With a passive income, one may invest on something and you earn from it without doing anything at all, hence, the term. 

The best way to make a passive income is through real estate investment.

How does it work? 

The first step is to really analyze expenses. It’s actually quite surprising that many people actually spend more than they earn. One logical reason for this is the credit cards. They give the people the impression that they have more money than they can actually spend. Now, a person has to be more meticulous with their expenses. They should stop buying unnecessary expenses and get out of unused contracts.

For example, a lot of people have gym memberships but they don’t actually use it. Some also have cable connections that they don’t get to maximize the use of because they also have Netflix. One has to get rid of unnecessary expenses so they can use the money to invest in real estate. 

Now, how to choose a real estate investment? It should be something that fits a person’s lifestyle. If a person has a lot of time, then they can build their own building that they can eventually lease to people and businesses. Those that don’t have the time and energy can find something that is already for use. They can purchase this building and have the spaces rented out either for residential or commercial purposes. 

Anyone interested in real estate should be guided by rules and strategies. They should have the right information on how to go about getting passive income. A person can have substantial earnings when they do real estate right. 

The earnings are good enough, but that’s not the only benefit from investing in real estate. Among them are appreciation and depreciation, mortgage paydown, inflation projection, and tax deductions.

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