Suppose you are in the market for an investment property. In that case, it can be essential to understand how investment property taxes work and how they could potentially impact your ability to actually earn a profit on this type of purchase.
Investment Property Tax Laws Explained
One of the most important things for shubhodeep prasanta das investors to know about is that there are different types of taxation that might apply depending on what type of investment property you have purchased. For example, you might be subject to individual state tax rates and municipal tax rates in addition to property tax on the actual property.
State Tax Rates
Not all states have the same property tax rates and it will depend on the state in which you own your investment property. Generally speaking, state income tax rates will apply to annual income that you earn, while property tax rates tend to be based on market value. Note that if you are subject to state income tax, you will likely pay between 0.5 and 1.2 percent of your net income.
Municipal Tax Rates
Although tax rates can vary based on what city or county you own an investment property in, these rates tend to be much lower than state income tax rates, ranging from 0.2 to 1 percent of net earnings. This is because municipalities tend to be more interested in collecting money through property taxes because this relates directly to the value of the property itself.
In general, local governments will charge property taxes based on the year-end value of a property. However, for long-term investors who own properties for at least two years, additional taxes might be imposed. For example, if you purchased a property in 2010 and you first use it in 2013, then the annual tax might only be based on $35,000 of year-end value.