USA – NEW YORK Law and Practice Contributed by: Lindsey Haubenreich, Joseph Heins, Timothy Moriarty, Kimberly Nason and Matthew Fitzgerald, Phillips Lytle LLP
8.4 Income Tax Withholding for Foreign Investors Foreign investors are generally subject to a 30% withholding tax on certain US source income, includ - ing real property rental income. In certain cases, an income tax treaty may reduce the withholding tax rate. The Foreign Investment in Real Property Tax Act requires the purchaser of real property owned by a foreign investor to withhold a 15% tax on the total amount realised on the purchase. Foreign investors in partnerships are subject to a 15% withholding tax on the sale of their partnership interests. 8.5 Tax Benefits Benefits include depreciation deductions for taxpay - ers with respect to improvements made to real prop - erty. In addition, to the extent that the owner of the real estate used in a trade or business financed the acqui - sition of, or improvements to, the property with debt, the interest is deductible. Generally, the amount of interest that can be deducted is limited to 30% of the taxpayer’s adjusted taxable income, but real estate businesses that meet certain requirements can elect to fully deduct their entire interest expense. Individuals who own real estate directly or through a pass-through entity pay tax on any long-term capital gain recognised at significantly lower rates than other types of income. Real property owners who hold property for invest - ment, or for use in a trade or business, may dispose of that property in tax-efficient ways not available to other types of property, such as through Section 1031 of the Internal Revenue Code.
of the deposit, or by posting a bond equal to 110% of the lien. 7.7 Requirements Before Use or Inhabitation An owner must obtain a certificate of occupancy stat - ing a legal use and/or type of permitted occupancy of a building before a building may be occupied. A certificate of occupancy has no expiration date.
8. Tax 8.1 VAT and Sales Tax
New York State does not have a value-added tax. New York State sales tax only applies to the sale or lease of tangible personal property and selected services; it does not apply to the sale or purchase of real estate. 8.2 Mitigation of Tax Liability Parties occasionally use a Consolidation Extension and Modification Agreement to reduce mortgage recording tax. Provided both the existing lender and the new lender agree, the existing lender assigns its mortgage to the new lender, which will then amend the terms of the mortgage for refinance or purchase of the property. A buyer will then pay mortgage tax on the difference between the outstanding balance of the seller’s existing mortgage and the buyer’s new mortgage, rather than paying tax on the entire amount
of the new mortgage. 8.3 Municipal Taxes
In Upstate New York, municipal taxes are typically not paid on the occupation of business premises nor on the payment of rent.
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