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fizkes/Getty Images September 01, 2022 Erik J. Martin is a Chicago area-based freelance writer/editor whose articles have been featured in AARP The Magazine, Reader's Digest, The Costco Connection, The Motley Fool and other publications. He often writes on topics related to real estate, business, technology, health care, insurance and entertainment. Michele Petry is a senior editor for Bankrate, leading the site’s real estate content. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Buying or selling a home is one of the biggest financial decisions an individual will ever make. Our real estate reporters and editors focus on educating consumers about this life-changing transaction and how to navigate the complex and ever-changing housing market. From finding an agent to closing and beyond, our goal is to help you feel confident that you're making the best, and smartest, real estate deal possible. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. There are a lot of expenses involved in buying or selling a home. In addition to paying , and attorney fees, you may also have to fork over money for a real estate transfer tax, which is a tax on the transfer of a property’s title or deed. The rules of real estate transfer taxes vary by location. In many areas, the seller is responsible for payment; in others, transfer taxes aren’t levied at all. Here’s what you need to know about real estate transfer taxes, how much you may be liable for, where the money goes and whether the cost is tax-deductible.
What are real estate transfer taxes
A real estate transfer tax, sometimes called a deed transfer tax, is a one-time tax or fee imposed by a state or local jurisdiction upon the transfer of real property. Usually, this is an “ad valorem” tax, meaning the cost is based on the price of the property transferred to the new owner. Transfer taxes are applied to a change of ownership for any type of property that requires a title, as stipulated by a deed or other legal document, according to Paul Miller, CPA and managing partner of Miller & Company in New York City. “These are simply a tax on the transfer of property,” Miller says. “A transfer tax may be levied from a government entity within the United States, including any city, county or state, but most real estate transfer taxes are generated by local governments.”
How they differ from other real estate taxes
Real estate transfer taxes are different from , estate taxes and gift taxes, although it’s easy to confuse them. Property taxes, for one, are imposed on properties as a source of revenue for local governments, and are a recurring tax. Estate taxes are paid when the assets of a deceased party, or the estate, are transferred to their heirs. Estate taxes are levied at the federal level if the estate is valued at over $11.58 million (as of 2020), and also at some state levels as an . Gift taxes, on the other hand, are paid when a gift of any kind of property is given to another without repayment, provided the gift is valued over a certain threshold. “Gift tax and estate tax are typically imposed on the transfer of property, pursuant to estate planning or upon death in accordance with the will,” explains Allen Popowitz, chair of the real estate practice at Brach Eichler, a law firm in Roseland, New Jersey. “Transfer taxes are imposed on the actual transfer of the real estate, typically between a property owner and a third-party purchaser.” Put another way, “estate and gift taxes are technically transfer taxes, but with different limitations and charges — and unlike real estate transfer taxes, they are paid to the IRS,” says Tania Bartolini, a real estate attorney based in Fort Lauderdale, Florida.
How much are real estate transfer taxes
The cost of the real estate transfer tax differs from state to state, with the amount based on the price of the property being transferred. “They can be as low as a flat rate of $2, as it is charged in Arizona, or a percentage of the sales price that can exceed 2 percent,” according to Paul Joseph, a CPA and attorney in Williamston, Michigan. Consider what you’ll pay in these different states based on a $500,000 home sale, Bartolini says: Colorado – $50 North Carolina – $1,000 New York – $2,000 Florida – $3,500 Real estate transfer taxes are considered part of the closing costs in a home sale and are due at the closing. Transfer taxes are not tax-deductible against your income tax, but can increase the tax basis of the property for the purchaser, reducing future .
Who pays for real estate transfer taxes
In many places, the seller is the one obligated to pay the transfer taxes, but the rules vary. “In some states, like Pennsylvania, this expense is typically split between the buyer and seller,” Popowitz says. “In other states, and depending upon the strength of the real estate market, the tax is sometimes paid by the buyer.” Of course, the seller and buyer have the option to who is responsible for paying real estate transfer taxes and stipulate this in the real estate contract. Where do the funds go
The local government that imposes the real estate transfer tax can use the funds collected for any reason or purpose they designate, “from repairing the streets to paying employee salaries,” Miller says. In some states, the entire transfer tax is simply paid to the state and distributed throughout the state’s budget.
States with no real estate transfer taxes
While many states levy a real estate transfer tax when a property title changes hands, several currently do not: Alaska Idaho Indiana Louisiana Kansas Mississippi Missouri Montana New Mexico North Dakota Oregon (most counties) Texas Utah Wyoming At the county level, California has what’s known as a “documentary transfer tax” on property transfers. Typically, this equates to $1.10 per $1,000 of the sale price throughout the state, although that amount can vary based on location. SHARE: Erik J. Martin is a Chicago area-based freelance writer/editor whose articles have been featured in AARP The Magazine, Reader's Digest, The Costco Connection, The Motley Fool and other publications. He often writes on topics related to real estate, business, technology, health care, insurance and entertainment. Michele Petry is a senior editor for Bankrate, leading the site’s real estate content. Related Articles