What Is Property Tax Planning?

K.C. Bruning

Property tax planning is the act of buying, selling, and otherwise managing property for the best tax benefit. This includes land, buildings, and other personal property. When buying investment property, this can include determining whether there are any tax expenses which could affect the profitability of the purchase.

The act of buying, selling, or managing property for the best tax benefit is called property tax planning.
The act of buying, selling, or managing property for the best tax benefit is called property tax planning.

Some common things to consider when engaging in property tax planning for a new investment property include the property transfer and capital gains taxes. Before making a purchase, it is wise to determine whether the property is in an area which has the property transfer tax and, if it is, what the percentage of tax will be for the year of purchase. It is also advisable to make a plan for how long the property will be held and determining how to time the sale so that the capital gains tax is as low as possible.

It is possible to offset investment tax if rental property tax is handled correctly.
It is possible to offset investment tax if rental property tax is handled correctly.

If the investment property is being rented, then property tax planning will also include determining how to best manage taxes for rental income. It is possible to offset investment tax if rental property tax is handled correctly. There are also potential tax credits and deductions available to investment property owners.

Property tax planning may also account for any development on a property. Building costs can have a significant effect on taxes. Development taxes can also often eclipse the other expenses connected with the project. One of the challenges of planning for this kind of property tax is to account for the income of a successful development while avoiding high rates. This is primarily because much of the income earned from a new structure must be used to pay for construction costs, including materials and paying off loans.

Planning for property tax on personal property varies widely, depending on the item. For extremely expensive items, it may be helpful to determine applicable taxes before making a purchase. Depending on the individual’s tax situation, it may be wise to change the timing of the purchase, either ensuring that it is made before the end of the year or waiting to buy until the next year.

The collection and administration of property tax is typically managed by local governments. It is usually assessed based on the location of the property, rather than the location of the owner. There are some aspects of property tax, such as rental income taxes, which may be taxed by both the local and national government.

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