Real Estate Taxation

1. Types of Real Estate Taxes

Property Tax
Levied annually by local governments (city/county).
Based on the assessed value of the property.
Funds public services like schools, roads, and emergency services.
Assessed value ≠ market value (assessors determine taxable value).

Rental Income Tax
Real estate investors must pay taxes on rental income.
Expenses (maintenance, property management, mortgage interest) can be deducted.
Depreciation can reduce taxable income over time.

Capital Gains Tax (When Selling Property)
Short-term capital gains (if owned < 1 year) are taxed at ordinary income tax rates. Long-term capital gains (if owned > 1 year) have lower tax rates (0%, 15%, or 20% in the U.S.).
Primary residence exemption:
Up to $250,000 (single) or $500,000 (married) in profit is tax-free if the home was lived in for 2 out of the last 5 years.

1031 Exchange (Tax-Deferred Exchange – U.S.)
Allows investors to sell and reinvest in another property without paying immediate capital gains tax.
Must reinvest in a like-kind property within 180 days.

Transfer & Stamp Duty Tax
Charged when real estate ownership is transferred.
Varies by location (some states/countries charge higher rates).

2. Real Estate Tax Deductions & Strategies

Mortgage Interest Deduction – Reduces taxable income for homeowners.
Depreciation Deduction – Investors can depreciate rental properties over 27.5 years (U.S. rule).
Property Tax Deduction – Up to $10,000 deductible under U.S. tax law.
Home Office Deduction – If a part of your home is used for business, related expenses can be deducted.
Energy Efficiency Credits – Tax incentives for solar panels, energy-efficient windows, etc.

3. International Real Estate Tax Considerations

Foreign investors may face additional taxes when buying property.
Some countries impose inheritance tax or wealth tax on real estate.
Some regions (like Dubai, Monaco) have no property tax to attract investors.