The speculative builder tax applies to the sale of improved properties in Arizona. Arizona exempts the sale of primary and vacation residences that meet certain criteria.
For real-estate sales that fall under the speculative builder tax, the question becomes how the state calculates the total tax owed. Having an idea of the approximate tax to be paid can be helpful for planning purposes.
Speculative Builder Tax Computation
Sellers should follow these steps to estimate the speculative builder tax:
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Begin with the property sale's gross income
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Subtract deductions from the gross income to get a property's net base
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Deductions can include property taxes, architectural and design services
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Calculate the factored tax by multiplying the net base against the city tax
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Cities may have different rates
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For example, the Phoenix tax rate is 2.3 percent
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Subtract the factored tax from the net base to get to the calculation base
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Multiply the calculation base with the standard 35 percent deduction to get the net taxable income
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Multiply the net taxable income by the city tax rate to get the net taxable speculative builder income
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Deduct any city tax credits for the calculated tax
This final number is the estimated speculative builder tax due.
Example
On their own, these steps can be confusing. An example can potentially make the process easier to understand.
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A house sells for $400,000 in Phoenix.
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The house qualifies for a total of $20,000 in deductions, meaning its net base is $380,000.
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The house's factored tax is $5,597.32. The calculation base is $374,402.68.
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The net taxable income is $243,361.74
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The tax rate is $5,597.32. If the property has any city tax credits, they will be deducted from the tax rate.
This example simplifies the process considerably. Deductions can vary between houses, even those in the same neighborhood. A qualified tax attorney can help you understand and navigate this law.
If you need help, call Senior Partner, Tax Controversy Attorney, and former IRS attorney Brandon A. Keim at (602) 200-7399 or contact him online to discuss your options.
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