Understanding Real Estate Tax Law
Real estate taxes can vary significantly based on location and the type of property involved. Whether you’re an investor, homeowner, or landlord, understanding how these taxes apply to your situation is essential for effective planning and compliance.
Tax obligations differ across counties and municipalities, with local assessors determining property values and applying applicable rates. In addition to local taxes, state and federal considerations may also impact your overall tax liability.
If you’re navigating real estate tax matters, our real estate attorneys serving Bucks, Delaware, Montgomery, and Philadelphia Counties can help you understand your obligations and identify opportunities to manage your tax exposure.
Common Types of Real Estate Taxes
- Capital Gains Tax
- County Property Tax
- Transfer Tax
- Net Investment Income Tax
Real estate tax laws can be complex and vary based on your specific situation. Working with experienced legal counsel can help ensure compliance while protecting your financial interests.
Capital Gains Tax
If the proceeds of your property sale exceed its costs, you may be subject to a capital gains tax. Your taxes reflect the sum of these items:
- The price you paid for the property.
- For example, the property costs include application, appraisal, and home inspection fees.
- The cost of significant improvements like roof replacement, room additions, heating upgrades, and more.
The time you've held property also helps determine your tax calculation for real estate investments. For example, long-term investments typically receive more favorable treatment. Depending on income levels, tax rates may range from zero to 20%. A real estate tax lawyer can help manage your investments.
However, short-term capital gains are taxed as ordinary income. In that case, federal tax rates may range from 10% to 37%, depending on your income. In addition, if you incur a capital loss, you may be able to offset those losses against other income.
Property use also impacts your taxation when selling a property. For example, business properties are subject to depreciation tax. On the other hand, a primary residence where you've lived for at least two of the past five years may qualify you for exclusion of up to $250,000 if you're single and $500,000 if you're married.
Talk to your accountant or a real estate tax lawyer near you to help determine your tax owed.
County Property Tax
Your local government collects real estate taxes to fund community projects and services, such as emergency services, schools, and roads. Those taxes reflect the assessed value of your land and its buildings.
Local authorities set property taxes, resulting in varying costs depending on your location. A property appraiser assesses your property to determine the appropriate property tax.
If you're dissatisfied with that assessment, you can challenge it. Estimates show, for instance, that 30-60% of properties in the United States are over-assessed. Talk to your county assessor or local real estate tax lawyer for details on challenging your assessment.
Transfer Tax
Pennsylvania imposes a 1% real estate transfer tax based on the property's value. In addition, the county where the property is located imposes a tax. For example, Montgomery County's transfer tax is one percent. On the other hand, Philadelphia imposes a 3.278% transfer tax on the value of real estate transferred, one of the highest in the state. You can read more about the real estate transfer tax in Philadelphia here.
Both the grantor and the grantee are jointly and severally liable for tax payments. The county recorder of deeds collects and remits the Commonwealth's one percent to the Department of Revenue.
Some real estate transfers are exempt from the tax. For example, transfers among family members may be held exempt. It's essential to check with your real estate agent or tax lawyer to determine your property transfer tax.
Net Investment Income Tax
Regarding real estate, the Net Investment Income Tax (NIIT) applies to rental income and capital gains from the sale of rental property. It uses a 3.8% rate for certain investment income, such as rental income and capital gains, for a taxpayer. Profits from investment real estate sales also qualify.
NIIT applies to the lesser of your net investment income or the amount your modified adjusted gross income (MAGI) surpasses filing thresholds established by the IRS.
NIIT impacts only high-income taxpayers, for example, single-filing individuals with more than $200,000 and joint filers with more than $250,000 of income. It's applied to estates, trusts, and individuals. Here's a closer look at the exact thresholds based on your filing status:
- Single: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
- Head of household with a qualifying person: $200,000
- Qualifying widow(er) with dependent child: $250,000
Proper investment management is essential. An investment planner or real estate tax lawyer can help you with that effort.
How Our Real Estate Tax Lawyers Can Help
Our attorneys have extensive real estate tax law experience in Bucks, Delaware, Montgomery, and Philadelphia County. They also support clients throughout southeastern PA and even New Jersey.
Our lawyers and attorneys have appealed tax assessments for properties of all types, including affordable rental housing, utility and condominium properties, and tax exemptions for properties owned by non-profit entities.
In addition, our real estate tax lawyers have negotiated payment-in-lieu-of-tax ("PILOT") agreements and real estate tax abatements for new construction under Pennsylvania's Local Economic Revitalization Tax Act ("LERTA") throughout the Commonwealth. They've also negotiated tax increment financing agreements with local taxing officials.
Our real estate attorneys understand the complexities of Pennsylvania and Philadelphia's real estate transfer tax statutes and regulations. Call our law firm if you're confused by tax laws or facing a legal issue. We have offices in Doylestown and Norristown, PA.
We can also help you with other real estate issues, such as construction law, real estate litigation, and land use and zoning.
