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Understanding Property Taxes and Fees When Buying a House in the Virgin Islands

Are you looking to buy a property in the U.S. Virgin Islands? Considering how serene and enchanting this place is, it is entirely understandable. However, even as you plan to go ahead with your plan, it is crucial to equip yourself with a comprehensive understanding of everything that is involved in property ownership in this region, which, of course, includes property taxes and fees. This is an often-confusing aspect of property ownership, and many people usually overlook it, mostly due to the excitement of owning a home in such a captivating environment. But comprehending the nuances of property taxes and fees is vital so that you are not only compliant with the area laws, but also know what to expect after your investment in terms of the taxes and fees you must pay. Fortunately, you are at the right place as we will give you all the figures and everything you should know about buying a house in the U.S. Virgin Islands.

Overview of property tax in the U.S. Virgin Islands

First, property taxes in the Virgin Islands are among the most attractive in the Caribbean, as they are generally lower than in other islands and lower than in many U.S states. Property on the island is taxed at 1.25% of the property’s assessed value, usually about 60% of its actual or fair value, representing a 0.75% tax rate on the fair value. So, for instance, for a property worth one million dollars, the property tax would be 1.25% of $600,000 (60% of $1,000,000, which is the assessed value), which will be $7,500.

Every individual who becomes the owner of any land or house or both, whether through purchase, lease, gift, bequest, devise, or any other means, is liable to pay this tax. However, there are a few exemptions, which include the following:

  • Crown property that’s exclusively used for public purposes
  • Any hospital, asylum, or other institutions, which are maintained out of revenues of the territory
  • Any property owned by a religious denomination has been set apart to be used solely for divine services or as a residence for ministers of religion.
  • Community centres
  • Any property that’s used as, or in connection with, a school under the provision of the Education Act of 2004
  • Property that is used as a cemetery
  • Any right of way or an easement.

Please note that you also pay tax for land, which applies to each acre of land or even fractions of an acre within specific territories. And as we had mentioned, the house tax is a tax imposed on the assessed value of each residential property situated within the same region. This tax is directly related to the value or worth of the house rather than the size of the land it occupies. However, the combined tax is what we refer to as property tax, and it is payable by every individual who erects, reconstructs, repairs or enlarges any existing building.

Additional charges

Apart from property taxes, there are other fees and charges associated with homeownership in the Virgin Islands. They include the following:

Stamp duty – Stamp duty is a significant fee that buyers must consider when purchasing a property in the Virgin Islands. It is a one-time payment imposed by the government and is based on either the buying price or the appraised value of the home, whichever is higher. The stamp duty rates vary based on the value of your preferred property. Here is the breakdown of the stamp duty rates as of 2023:

  • For property worth up to $350,000, the stamp duty rate is 2% of the purchase price or appraised value.
  • For properties ranging from $350,000 to 1 million, the stamp duty rate increases to 2.5% for properties falling within this price range.
  • For those ranging from $1 million to $5 million, the stamp duty tax will be 3%
  • And lastly, for a property that is over $5 million, the duty rate increases to 3.5%

It is important to note that these rates are always subject to change, so it would be advisable to check with local authorities or consult a real estate professional for the most up-to-date information.

Real estate closing costs – when you buy a property in the Virgin Islands, there will be significant closing costs that you will need to consider. The specific cost may differ depending on the type of property and the type of loan involved. Here is an expanded breakdown of the typical closing costs to consider:

  • Earnest money – when purchasing a property in the USVI, it is customary to provide earnest money as a sign of good faith. Earnest money is a deposit made by the buyer to demonstrate their serious intent to proceed with the transaction. The amount of earnest money can vary but is usually a percentage of the purchase price and is typically directed towards the down payment or closing costs.
  • Down payment – the down payment is a substantial cost that buyers need to consider. It is the initial payment towards the property’s purchase price and is typically a percentage of the total price. The exact down payment percentage can vary depending on factors such as the type of loan, the buyer’s creditworthiness, and the lender’s requirements. Budgeting for the down payment is essential to ensure you have the necessary funds available at the time of closing.
  • Inspection costs – before finalizing the purchase of a property, it is recommended to conduct a thorough inspection to identify any potential problems or repairs needed. The inspection costs can vary based on the size and complexity of the property. These costs typically include hiring a professional inspector to assess the property’s condition, including its structural integrity, electrical systems, plumbing, and other vital components. Investing in a comprehensive inspection can help you make informed decisions and avoid unexpected expenses in the future.
  • Appraisals – in most real estate transactions, lenders require an assessment of the property. The evaluation is conducted by a licensed professional who determines the property’s fair market value. And the cost of the appraisal is typically borne by the buyer and is necessary to ensure that the property’s value aligns with the purchase price and the loan amount. The appraisal assures the lender that the property has adequate value to secure the loan.
  • Real estate attorney fees – engaging the services of a property attorney is highly recommended to navigate the legal aspects of the transaction. The fees for the attorney can vary depending on the complexity of the transaction and the attorney’s experience. Their role includes reviewing contracts, conducting title searches, facilitating the closing stage/process, and ensuring all legal requirements are met. It’s essential to factor in these fees when budgeting for the closing costs.
  • Homeowner’s insurance – lastly, securing homeowner’s insurance is a vital step in protecting your investment in the property. The insurance can be particularly expensive due to the extreme weather experienced on the islands. The amount you will pay depends on numerous factors, including the construction itself and the presence of shutters and high-impact glass. Typically, homeowners will pay between 1.35% and 2% of the replacement cost annually. It is customary to pay the premium for the first year of homeowner’s insurance at the closing stage. In addition, it’s essential to obtain insurance quotes from reputable providers and budget for this expense accordingly.

Utilities – the Virgin Islands Water and Power Authority (WAPA) has served the community since 1964 as a self-governing public utility. Their primary focus is generating and distributing electricity to around 55,000 customers across the island. In addition, they also supply clean and drinkable water to approximately 13,000 customers in major residential and commercial areas such as Charlotte Amalie (St. Thomas), Christiansted and Frederiksted (St. Croix), Cruz Bay (St. John), and specific subdivisions. It’s important to note that WAPA faces a unique challenge due to its reliance on fuel oil, which means its customer rates are often higher than other regions in the United States. This is because crude oil costs keep escalating globally, affecting the overall prices. So, the monthly bills for customers will vary based on their usage and the prevailing Levelized Energy Adjustment Clause (LEAC) factor.

You might be wondering what the LEAC factor is all about. Well, it’s a surcharge that allows WAPA to manage the fluctuations in fuel prices. Think of it as a way for them to respond to increases or decreases in the cost of fuel, and like in other Caribbean islands and some mainland utilities, it’s often referred to as the “fuel factor.” It’s also worth mentioning that the Virgin Islands Public Service Commission must approve any changes to WAPA’s customer rates and adjustments to the LEAC factor. This ensures that the rates and adjustments are fair and reasonable for homeowners.

Homeowner’s association fees – If you are purchasing a property within a community or development with a homeowners association (HOA), you will likely be required to pay HOA fees. These fees cover the maintenance, management, and upkeep of shared amenities, common areas, and any services provided by the HOA. The amount you end up paying depends on the size of the development, the amenities offered, and the services provided. The location of the property also influences the fees. However, the costs range from $600 to $2500, depending on the factors we mentioned.

Tax benefits and incentives

There are a couple of benefits that property owners on the island stand to enjoy by being tax compliant. These benefits include the following:

  • Energy-efficient upgrades – for starters, homeowners in the Virgin Islands may be eligible for federal tax credits and incentives for energy-efficient upgrades. These incentives aim to encourage sustainable practices and reduce energy consumption. Examples of eligible improvements include installing solar panels, energy-efficient HVAC systems, or water-saving devices. To understand the specific federal programs available, you may want to consult a tax advisor and know whether you qualify.
  • Historic preservation tax credits – Secondly, if you own a historic property in the Virgin Islands and undertake approved preservation or rehabilitation projects, you may be eligible for historic preservation tax credits. These credits can offset some of your tax liability and encourage the restoration and preservation of culturally significant properties. So, ensure that you familiarize yourself with these tax credits’ requirements and application process to take advantage of potential savings.
  • Economic development incentives – The Virgin Islands may also offer tax incentives and benefits to individuals or businesses contributing to economic development projects. Such projects may include investments in industries like tourism, renewable energy, or technology. These incentives aim to stimulate local economies and attract investment.

Tax payment schedule and penalties

Due dates – It’s essential to be aware of the tax payment schedule in the Virgin Islands to avoid late fees and penalties. So, each year, proprietors need to make payments between September 1 and November 30.

Penalties – failure to pay property taxes by the designated due date, you may be subject to late payment penalties. These penalties can accrue over time, increasing your tax liability. Ultimately, you might end up losing your property as the government could acquire it in the form of a tax lien.

Appeal process – if you believe there are errors in your property tax assessment or disagree with the amount of taxes levied on your property, you may have the option to appeal. Here is a process that you can follow:

Step 1 – property owners can review the Assessment Listing, prepared annually approximately two months before tax collection. You can access this listing at the Central Administration Complexes in Road Town and Virgin Gorda. They are also available at the Post Office and sub-post offices throughout the BVI, including other locations.

Step 2 – if you want to dispute the assessment, you must attend a hearing before the Magistrate on the specified date mentioned in the assessment listing.

Step 3 – following the objections hearing, the Magistrate will carefully consider the arguments presented and make a determination where he may choose to confirm, alter, or amend the Assessment List as necessary. And if you disagree with the Magistrate’s decision, you still have the option to file an appeal with the Court of Appeal.

Step 4 – but if there are no further disputes, you are required to pay the calculated property tax amount.

Seek professional advice

Navigating property taxes and understanding tax benefits can be complex, so we highly recommend you seek professional advice when buying a house in the Virgin Islands. Here are some professionals you may consider consulting:

  • Real estate attorney – A local real estate attorney can provide legal guidance throughout the home-buying process, including reviewing contracts, ensuring compliance with local laws and regulations, and advising on property tax matters.
  • A tax advisor – A tax advisor or certified public accountant (CPA) with expertise in local tax laws can help you understand your tax obligations, identify potential tax benefits, and optimize your tax strategy. They can also provide personalized advice based on your specific circumstances and goals.
  • Real estate agent – A knowledgeable real estate agent familiar with the Virgin Islands market can provide valuable insights into property taxes, transfer costs, and local incentives. They can help you find properties that align with your budget and preferences while considering tax-related factors.

Ultimately, with professional advice from any of these experts, you will make well-informed decisions, maximize tax benefits, and effectively navigate the complexities of property taxes in the Virgin Islands.

Conclusion

In conclusion, with a better understanding of property taxes and fees in the U.S Virgin Islands, you can confidently embark on your investment venture. The unique tax structure and additional fees associated with property ownership in this breathtaking paradise require careful consideration and planning. But when you recognize and understand the factors contributing to property taxes, you can better anticipate their financial obligations and make informed decisions. Moreover, knowing other fees like stamp duties, transfer taxes, and insurance costs allows buyers to budget accurately for their dream home. And since the property tax structure on the islands can be daunting, seeking professional help is of utmost importance and is highly recommended to ensure compliance and mitigate any surprises. Ultimately, by equipping yourself with all the necessary knowledge, your desire to own a home on this Caribbean island will almost be realized.