Real Estate Transfer Tax


A real estate transfer tax is a tax imposed on the sale of specific categories of property like residential, industrial or commercial, which increases or decreases with the volume and sphere of the property being sold. Sometimes sellers (who have witnessed the cost of their houses has shot over the years) pay the bill. In yet other cases the price is levied on buyers who are making investments.

In other words real estate transfer tax is paid once in a lifetime at the transfer of a property, and is a source of revenue for state budgets and expenses. This transfer tax though, after collected is not usually used for housing-related development. This tax is levied on the basis of the value of a property as per mutual agreement done by the parties in a real estate contract statement.

Fluctuation in Real Estate Transfer Tax Rates

Tax rates vary from state to state as some states do not levy any real estate transfer tax at all; some pump the revenues to the state general fund (albeit collection responsibilities lies with the county); and yet others offer local governments the right to collect and keep tax revenues. Cities of North Carolina have got special legislative granted for the tax; whereas Florida and Maryland paved the way in getting a portion of the funds raised be utilized for land conservation. Now it is general in states and communities to use taxes to establish separate funds for protection and mitigation of natural resource, parks and open areas. 

At the lower and local level, the real estate transfer tax plays a vital role in creating substantial funds for park and open space, specifically in fast-growing regions. Besides this, it can also enhance real estate prices and simmer down the market. Since funds generated from the tax vary with the real estate market position, income derived out of it is tough to apprehend.

Facts about Real Estate Transfer Tax

In Cape Cod, Massachusetts, a highly booming region has been a battlefield over the authority of real estate transfer taxing. The fight broke out in November 1996, when 80% of all legitimate voters in Barnstable County came forth to pass a home-rule petition pleading from the legislature the authority to impose a tax on real estate transfer. Funds were to be used to float a land bank which in turn would fund open space acquisition. The voters witnessed a significant won with 55% of the vote and special legislation was granted allowing 15 Cape Cod communities to levy a 1% tax on the sales of homes. The tax was decided to be paid by the seller. Afterwards the legislature set aside a veto approved by the governor and sent the case back to Cape residents for a second opinion. The measure was defeated as it was faced with well-managed and duly-financed opposition backed by the State Realtors Association. There are only two communities, viz. Nantucket, with a 2% tax on transfers, and Martha's Vineyard in the entire state that have been offered the rights for such a program.

In Block Island, Rhode Island, although, realtors backed a 2% transfer tax to fund the open space, appreciating the link between Block Island's natural beauty and their business aspects. The bonds and tax supported by the tax have churned out millions for open space acquisition and protection.

After a few years Rhode Island, Washington State passed its separate real estate transfer tax policy in the shape of legislation. This 1990 legislation levied a tax on real estate property transfer, which was to be paid by the seller and the funds were directed to local projects. A separate policy enabled the counties to impose an additional excise tax, with the approval of the voter, to generate revenue for the acquisition and maintenance of protected areas. This tax was the liability of the buyer; the rate of this tax cannot be more than 1% of the actual selling price. Till date, four counties have tried to win approval of voters for this tax but the efforts of only San Juan County has been fruitful.  

Real Estate Transfer Tax should not be Overlooked

In the ecstasy of selling or buying a house, generally the real estate transfer tax cost is not paid due attention. Based on locale, the tax is paid by either the buyer or seller at closing or escrow, but remember in New Hampshire both the buyer and seller has to pay, half of 1.5%! It may be a formidable amount in some states, but you should be ready and watchful about the transfer taxes, and who pays them, before you opt for a home search or put your home for-sale.

Real Estate Transfer Tax is Not Charged in all States

It is not all the states that charge real estate transfer tax! There are thirteen states which do not expect a real estate property tax. These include Alaska, Idaho, Oregon, Indiana, Louisiana, Mississippi, Missouri, Montana, Texas, New Mexico, North Dakota, Utah, and Wyoming.

On the other hand The District of Columbia and remaining thirty-seven states levy taxes on the transfer of a property. The tax is imposed only once when a property is exchanged or transferred between parties, unlike general property taxes which attract an annual payment based on the assessed value. Real estate transfer taxes spans from a low of .01% in Colorado and goes up to as high as 1.28% in Washington State.

Fluctuation on transfer taxes also encompasses Arizona that charges a tax on deeds. However Florida and Alabama charge on mortgages and deeds both. To ward off financial shocks you must inquire beforehand as to who will pay (buyer or seller) the transfer taxes and how much. Some states direct who pays the tax, and some just want the tax to be paid. This cost can mutually be negotiated between the parties. Consult an experienced and good real estate attorney for the same.