As a responsible landlord, you must know about real estate investment taxes. If you fail to stay updated and don’t pay the tax on time, you might have to bear heavy legal fines. You may also miss out on the investment property tax benefits, if you do not have enough knowledge about the latest developments in the tax rules.
As an investor, you should be aware of the real estate taxes you are obligated to pay, the factors that affect them, and how they can be calculated.
1. Property Taxes
Rental income is taxable, and hence, you are required to pay taxes for your investment property. As a result of Act 388, the gap between the taxes paid by different types of property owners has increased significantly in South Carolina. While they decreased for owner-occupied homes, they are still high for rental property owners. So, the tax you must pay for the single-family property you are living in will be much lesser than the tax you pay for your rental property.
2. Vacation Rental Taxes
BnB stays and vacation rental owners in Charleston are subjected to extra lodging tax payments. These include State and Local Sales Tax, State Accommodations Tax, and Local Tax. Short-term rental owners are expected to charge their tenants the applicable short-term tax and remit the tax to the appropriate authorities. These taxes apply to short-term rentals that are reserved for fewer than 90 consecutive days. However, before collecting these taxes from your tenants, you must:
- Register with the South Carolina Department of Revenue
- Have a tax rate report created by a certified tax professional to know and charge the exact amount to your tenants.
3. Millage Rate
The millage rate is the tax rate utilized to estimate local property taxes. It depicts the amount per every $1,000 of a home’s assessed value. There are several tax districts in the Lowcountry, and each has its own determined millage rate. The millage rate of North Charleston city is 0.302. However, it typically changes every tax year. Once you apply for the 6% exemption after buying the property, you need not reapply every year. Every year, the exemptions are carried out until your property is an investment home.
4. Calculating Real Estate Investment Taxes in Charleston
Taxes are not very complicated. Here is the standard formula that can help you calculate your property tax:
Due Taxes = Fair Market Value of Your Property x Assessment Ratio x Millage Rate – Potential Deduction.
- The Fair Market Value, also known as the Appraised Value, is the reasonable and fair price at which the house can be sold.
- The Assessment Ratio stands for the percentage of property value that is subject to taxation.
- The Millage Rate is the number of levied mills to meet the budget of a school district, a county, city, or political subdivision.
Estimating taxes and planning your finances can get very easy if you get the hang of this formula. However, if finance is not your forte, we recommend talking to a professional Charleston property manager to get help in figuring out and filing property taxes.
5. Tax Deductibles
Charleston taxes are some of the lowest in the United States. Additionally, landlords like you can avail themselves of some exemptions as well.
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The 6% Exemption
There is a tax break of 6% for investment properties and rental properties in Charleston. If you are using a property acquired in 2020 as a rental home, and if the seller also used it as a second home for other rental purposes, the 6% exemption applies to your home.
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Homestead Exemption
There is an additional tax deduction available for all South Carolina property owners who are:
- Permanently disabled
- Over the age of 65
- Legally blind
Understanding all of the tax-related issues of your rental property can be quite complex. If you have questions, feel free to reach out to us. Meridian Residential Group provides both single-family and multi-family property management in the Charleston, SC, area, including in North Charleston, Summerville, Goose Creek, and Moncks Corner, among other cities.
