✏️ Editor’s Note: Realtor Associations, agents, and MLS’ have started implementing changes related to the NAR’s $418 million settlement. While home-sellers will likely save thousands in commission, compliance and litigation risks have significantly increased for sellers throughout the nation. Learn how NAR’s settlement affects home sellers.
Transfer tax is a compulsory fee paid to the government while transferring the property’s ownership. This tax is calculated on the total price of the home sales value.
Some states charge a flat fee while other states may charge 2% to 3% of their home sales value.
Key Takeaways
- Transfer tax is an obligatory tax payble on transfering the ownership of the property.
- The transfer tax is usually paid by the seller as a part of their closing costs, or it can be paid by the buyer depending on their discussion.
- It is paid at the time of closing your property deal.
- Some states do not impose transfer tax at all.
What is Transfer Tax?
- It is also known as convenience cost, real estate transfer tax, deed tax, etc.
- It is paid at the time of transferring the ownership of the property.
- It is a one-time fee paid to the government.
- This tax can be charged at the state, city, and county levels. Sometimes at all three levels.
- Some states and counties do not charge the it.
- The tax is based on the value of the property.
- This tax can be paid by the buyer, or seller, or can be split as per their mutual discussion.
Transfer Tax Calculation
In most states, the transfer tax is calculated at a flat fee of $2 at $500 or $1000.
For instance, Alabama charges this tax at $0.50 for every $500 hence the property valued at $400,000 would account for $400 as the transfer tax.
You may have to pay city and/or county taxes in addition to the property taxes by state.
State Transfer Tax
Every state and county charges this tax at its respective level. However, there are exceptions where some states do not impose a the tax on real estate. They include:
| Alaska | Arizona | Idaho | Indiana | Louisiana |
| Mississippi | Missouri | Montana | New Mexico | North Dakota |
| Oregon | Texas | Utah | Wyoming |
Are Transfer Taxes Deductible?
No, you cannot deduct the transfer tax from your closing expenses. These taxes are paid to the government to validate the ownership transfer of the asset. It is generally paid by the seller and is included in the seller’s closing cost.
It can also be paid by the buyer in the buyer’s closing costs.
Who Pays the Transfer Tax?
This legal fee is commonly paid by the seller in his closing cost. There is no law that only the seller pays the transfer fee. Both can decide the ratio of the transfer tax to be paid.
When Does a Transfer Tax Become Payable?
You need to pay this tax within 15 days of the property title being recorded. If you miss the payment due date you will have to pay a fine.
Real Estate Transfer Tax Exemptions
As discussed earlier, every state and county has its individual tax law. There are some situations where this tax is exempted. They are:
- The homeowner of a newly constructed house
- Foreclosed property
- Property acquired as a gift
- Inherited property
- Transfer of property amongst the spouses due to separation.
Refinance Transfer Taxes
This tax is paid to the government whenever there is a transfer of ownership of the property.
Whereas in refinance, the owner still remains the same. They take the top-up on their existing mortgage only to better the interest rates, loan tenure, or for some other reason. Hence, this tax is not charged on the property refinanced. You can consult with the mortgage lender to know the exact numbers.
What is Generation-skipping Transfer Tax?
Generation-skipping tax (GST) is the tax paid on the property which is passed to the grantor’s grandchildren or great-grandchildren instead of their children. It is different from the estate tax.
Real estate taxes are quite heavy on your pocket. Hence, to avoid these heavy estate taxes, the grantor skips passing the estate to their kids and transfers it to the next generation.
Direct & Indirect Skips
GST tax is classified into direct skip & indirect skip:
Direct skip: In this, your grandparents transfer their estate in your name then your grandparents would pay the GST.
Indirect skip: In this, your grandparents transfer his estate in your name but the GST is paid by your parents.
Conclusion
Transfer tax is a mandatory fee charged by the government at the state, city & county levels for any real estate transaction. Almost 14 states in the US do not charge this tax.
It is paid by the buyer or seller or both in their closing costs. This tax needs to be paid within 15 days from the time the property is recorded.
FAQs
1. What is the real estate transfer tax based on?
The real estate transfer tax is based on the sale value of the property.
2. Who pays transfer taxes?
Transfer taxes are commonly paid by the seller in his closing costs. However, there is no law that only the seller pays the Transfer tax. The buyer & the seller can even mutually decide to divide the real estate transfer tax amount between them.
3. Who pays excise tax real estate?
The seller of the property pays the excise tax.
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- Best time to Sell a House: Planning to sell your house and want to know the favorable time to get the best deal? Must read now.
- Selling a house by owner: This would be helpful if you decide to sell your house all by yourself.
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