Personal taxation and depreciation rate

Personal taxation and depreciation rate

Personal taxation and depreciation rate

 

How is everyone doing,
Continues the previous post regarding personal taxation for real estate investment in the US.

We will continue from the previous post following a question that arose:
The Income Tax Regulations regarding buildings that are not solid stone buildings and are not reinforced concrete structures, ie, the majority of the buildings, have a depreciation rate of 4%.
Depreciation is calculated on the part of the building.
What it means???

In each real estate transaction part of the cost consists of the payment associated with the land and part associated with the structure.
In each country the division is different. In Israel 1/3 is associated with land and in the US for example 10% -15% is associated with land.

So when we talked in the previous post about the tax of 15% of revenue less depreciation, in fact the calculation is as follows:
Property cost - 90,000 (of which 30,000 is associated with land and 60,000 is associated with structure)
The rent that the tenant paid this year - 11,000
The calculation is as follows:
Depreciation recorded as an expense: 2,400
= 4% * 60,000

Hence, 15% tax will be paid on the sum of 8,600 = 2,400 - 11,000
That is, 1,290 NIS.
From this amount, the tax paid in the United States will not be deducted, and will be added to the total tax you paid.

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Now we will continue on the personal plane.
What it means? ... this means that if here in Israel you are in the tax bracket of 35%, then from any additional income you will be deducted tax at the rate of 35% starting from the additional shekel and continuing according to income tax brackets
You probably think that it comes out a lot ... and not necessarily necessarily for the following reasons:
1. From the amount of tax that must be paid in Israel, it is possible to deduct the tax paid in the United States so that it is a de facto field
In a smaller amount.
2. Because each year your profit from the property is different then it can be a year with very little profit, which means
That the tax rate be lower than the previous option (of the 15%) we discussed.

Therefore, it is possible and necessary to examine the advantage of having direct maintenance on your property, which is the ability to choose a different tax path each year according to what is good for you.

* It is important to know that not every expense recorded in the American report is recognized in the same manner in the Israeli report as depreciation calculated differently by the American method or the credit received by investors in their 4,050 report per year (and discontinued from 2018)

** Another important, if there is a loss of sand from another source
That does not result from an activity under an LLC can be offset before the tax is calculated in Israel. (Or alternatively have a loss from home and gain from another source that is not an LLC)

What about National Insurance?
Those who choose personal taxation should know that there is also social security to pay.
The National Insurance Institute on this subject is calculated on an annual basis and not per month.
Since this is passive income, the rates of National Insurance are actually as follows:
Until a profit before tax of NIS 29,724 (2,477 in monthly distribution), there is no Social Security tax.
Beyond that there are 2 steps, attached link to the page on the National Insurance website -  www.btl.gov.il

Link to the original post in the United States Real Estate Forum on Facebook - Works on a desktop computer (To view the post must be members approved for the forum):
http://bit.ly/2GDRQLu

The original responses to the post can be read at the bottom of the current post page on the site or in the link to a post on Facebook and of course you are invited to join the discussion

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Responses

  1. Another question, regarding the personal route: If in Israel we are on a different level than 35%, for example 31%, for an annual income of 200,000 NIS as an employee for example.

    (According to the tax brackets, from 239,521 the step becomes 35% https://www.kolzchut.org.il/he/%D7%9E%D7%93%D7%A8%D7%92%D7%95%D7%AA_%D7%9E%D7%A1_%D7%94%D7%9B%D7%A0%D7%A1%D7%94)

    In such a situation, how is the tax calculated in the personal track? Trying to understand if there is a situation where we pay tax (on deducting expenses from income) that is less than 35%.

    Thank you!

  2. Omri Ben Ya
    You can not…
    This is according to the narrowness of the llc activity determined ..
    Transparent / non-transparent decide on the first submission of the report ..
    Control and management from Israel or not

    Different taxation and accounting methods

  3. Ido Post is excellent.

    You noted in the post that it is necessary to examine the advantage of holding the property directly because of the ability to choose a different tax track each year.

    Is when the property is registered under the LLC can not be changed every year tax track?

  4. End of year… If it's personal then you have to wait for the May area at least..after you have 106 and the American dollar… and the rest of the things needed..especially if there are more investments
    If this 15% then at the beginning of the year moderated

  5. Well done Ido. It is completely incomprehensible to summarize the topic in such a straightforward and understandable way for everyone.
    You only have a few points to refine.
    1. The American taxable against the Israeli tax is both federal and state tax. Those who pay AMT will not be credited for it.
    2. The Social Security issue Ido noted is very important in deciding which route to choose. Many investors and unfortunately accountants also forget to consider this. Social Security and health insurance contributions reach 12%, which can be very significant.
    3. Another thing about Social Security that is relevant to married women. Rental income that belongs to a married woman who is not an employee and who is not independent of the payment of Social Security contributions without limiting the amount of income. So you should consider listing properties to their name.
    About splitting income between the couple. Even if in terms of income tax in the annual report it is recorded as income of both spouses and is automatically added to the spouse who has higher personal income. Regarding Social Security, the rules are different and it is therefore worthwhile to look into the possibility of splitting the income between the couple in order to reduce the payment both due to receiving the twice exempt amount and also utilizing the lower degree.