What is a Real Estate Transfer Tax?

Purchasing or selling a home comes with a multitude of financial considerations. On top of covering closing expenses, real estate agent commissions, and legal charges, there’s the potential obligation to also allocate funds for a real estate transfer tax. This tax pertains to the exchange of property ownership, involving the title or deed. The majority of states impose these taxes when one party transfers or donates real property to another party. Cities, counties, and townships may also charge these taxes as well.

Depending on the location, a real estate transfer tax may also be referred to as:

  • Real property transfer tax
  • Realty transfer tax
  • Recordation tax
  • Documentary transfer tax
  • Conveyance tax
  • Documentary stamp tax
  • Deed transfer tax
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How much can these taxes cost?

The fee for the transfer tax differs from state to state but could be calculated based on the property’s selling price or its assessed value. This needs to be settled prior to the official recording of the deed. Consequently, title and escrow firms typically incorporate this tax within the closing expenses for a real estate deal.

Certain regions that charges real estate transfer taxes might offer reductions or exemptions for specific groups. These groups may include seniors, individuals with disabilities, low-income families, and first-time homebuyers. Additionally, particular transaction types, such as property transfers between parents and children. As well as transfers between spouses during a divorce, or transfers executed under a will, could also qualify for exemption from real estate transfer taxes.

Across numerous locations, the responsibility for paying transfer taxes often rests with the seller, although the regulations may vary. In some states, this tax is typically split between the buyer and seller. In other states, the tax is sometimes paid by the buyer. Naturally, both the seller and buyer retain the choice to discuss and determine the party accountable for covering real estate transfer taxes, a detail that can be explicitly outlined within the real estate contract.

States with no real estate transfer taxes

Here are states that do not levy real estate transfer taxes when a property title changes:

  • Alaska
  • Idaho
  • Indiana
  • Louisiana
  • Kansas
  • Mississippi
  • Missouri
  • Montana
  • New Mexico
  • North Dakota
  • Oregon (most counties)
  • Texas
  • Utah
  • Wyoming