Depending on the state in which you are buying or selling a home, you may be subject to a deed transfer tax. This fee is tacked onto the deed sale or transfer for a “real” property, defined as any structure attached directly to land. This sales tax not only applies to the transfer of ownership, but also the reassignment of any interest related to a property.
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Most states impose deed transfer taxes on title transfers that take place within their respective jurisdictions SmartAsset has rounded up all the important details you need to know about deed transfer taxes to ensure that you are completely prepared for your next real estate transaction.
How is a Deed Transfer Tax Calculated?
Also known as a realty transfer fee, the deed transfer tax is calculated based on the fair market value (FMV) of a given property within a given area. FMV is the price at which informed buyers and sellers agree to do business, hence transacting over a property. Factors that contribute to the deed transfer tax value include property location, and levies imposed by state, county and municipal entities.
Deed transfer tax rates vary by state. The transfer tax is ad valorum — Latin for “to the value” — and comprises a percentage of the deed’s total worth. For instance, in New York State, the deed transfer tax equals two dollars for every $500. Percentage rates also fluctuate based on the value bracket of a home. For example, there is an additional “mansion” tax — 1% of the total price — for residences costing $1 million or more in New York State.
Where Does the Money Go?
Deed transfer taxes are separate from property taxes. Typically, local counties collect it at the time of deed filing and affix a “stamp” to the deed, rendering it valid. The county then delivers collected funds to the state, which disperses the monies to support state, county and municipality operations. These fees can also go to maintain area-specific initiatives, including affordable housing or land preservation.
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Who Pays for the Deed Transfer Tax?
The deed transfer tax can be split equally between the buyer and seller. It is considered a closing expense, so both parties can negotiate how much each is willing to pay. Once agreed upon, the stipulation is added to the contract terms before presenting them to the county clerk.
Are there Exemptions?
There is a number of exemptions when it comes to deed transfer taxes, which also vary from state-to-state. Common exclusions include deed transfers between family members, e.g. parents-children and grandparents-grandchildren; transfers between spouses due to divorce proceedings; transfers from a property owner to the state; transfers concerning the death of a joint tenant; and transfers of cemetery plots. Check with your local county government to verify the exemptions that may apply to you.
Is a Deed Transfer Tax Deductible?
According to the IRS, you cannot treat a transfer tax as an itemized reduction on your federal income taxes. Be aware that the deed transfer tax has other names. You should know them, so you can determine what is not deductible when you file your taxes: transfer tax, recording tax, deed recording tax, mortgage recording tax, mortgage tax, documentary transfer tax and stamp tax.
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In sum, the deed transfer tax is exercised in most states, with the exception of Alaska, Idaho, Indiana, Louisiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah and Wyoming. The tax can be split variably between the buyer and seller, and should be negotiated. The deed transfer tax is not deductible, but there are several exemptions for which you may qualify. While it is an added expense, a stamped deed is notarized and filed in public records, making it a prominent document with greater protection by state laws.
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