Buying a house is quite expensive. There are additional costs attached to it. You would think that selling a house would be a breeze, but it’s not.
There are also expenses involved in selling a house. There are closing costs and real estate commissions to be paid by either the buyer or seller. There are also attorney’s fees to consider.
Here’s another one: real estate transfer tax.
Every state has a different regulation when it comes to real estate transfer tax. In most cases, the seller of the property will pay for the transfer tax. In some, transfer taxes are not imposed.
What are real estate transfer taxes?
Also known as a “deed transfer tax”, this is a one-time fee levied by the state or local authority during the transfer of the property from the seller to the owner.
The cost depends on the value of the real property.
The basic tenet is the higher the sale price of real estate, the higher the percentage of the real estate transfer tax.
Government jurisdictional agency imposes the transfer tax. It could be the state, country or city, but mostly the local governments.
How is the real property transfer tax different from estate tax, property tax and gift tax? One can easily confuse these four taxes but they are actually distinct.
Estate tax is imposed on assets that were handed down to the heirs after the owner’s death. When the value of the assets is over $11 million, the tax will be imposed by the state. Some states also refer to it as inheritance tax.
Property tax, on the other hand, is a recurring levy imposed on properties. It is one of the sources of income among local governments.
The gift tax is imposed on a property that was given freely. The property has to be valued at a certain amount to be levied the gift tax. This is typically imposed following the estate planning.
Meanwhile, the estate tax is imposed upon death based on the owner’s will. The gift and estate taxes are similar to the real estate transfer tax but with distinctive charges and limitations. They are also paid to the IRS.
The real estate transfer taxes are levied on actual transfer of the real estate and usually between the property owner or seller and a third-party buyer.
Each state has different tax regulations. The amount is also based on the value of the property.
As an example, note the different real estate transfer taxes based on a house that’s worth $500,000:
Colorado – $50
Florida – $3,500
New York – $2,000
North Carolina – $1,000
That’s how stark the differences are among states. This is actually something to consider when buying a house.
Still, there are other states that don’t impose a real estate transfer tax at all:
Most of the counties in Utah, too, don’t levy transfer tax.
In most cases, it is the seller that is saddled with the real estate transfer tax. But as the states have autonomy on this, there are instances when it varies.
In Pennsylvania, for example, the tax is divided between the buyer and seller. In some areas, the buyer also pays for it.
Although, the buyer and seller can make a deal regarding who pays for this or if they want to split it. The provision will be included in the contract.