Who Pays the Real Estate Transfer Tax?
There are a lot of terms you need to know when you're buying or selling a home, and most of them involve the exchange of money. One item you might see on documents at the closing is a "real estate transfer tax." Some states charge such a tax, but others don't. How it's determined and who pays it depends on the state.
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What It Is
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A real estate transfer tax is a one-time tax paid at the closing, and it's based on the value of the property being sold. Revenue from the tax isn't necessarily earmarked for any specific purpose. Some states designate the revenue for projects such as land conservation, while others deposit the revenue in their general fund.
States with Transfer Taxes
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The method of calculating the real estate transfer tax and determining who pays it varies by state. Some states have a rather complicated formula, such as Georgia's, which is $1 for the first $1,000 of the purchase price plus $0.10 per additional $100. In Georgia, the seller pays the transfer tax.
Other state formulas are more straightforward, including New Hampshire's, which is 1.5 percent of the purchase price of the property. In New Hampshire, the buyer and seller split the transfer tax equally.
Some states don't stipulate who pays the transfer tax. In these cases, it's decided in the negotiation process between buyer and seller.
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States Without Transfer Taxes
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A few states don't have real estate transfer taxes. These are Alaska, Idaho, Indiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah and Wyoming.
Alternatives
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A few states, including California and Louisiana, don't mandate a real estate transfer tax but allow local governments to impose them. Arizona, meanwhile, doesn't have a transfer tax but does charge $2 to record the deed.
Considerations
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When you're buying or selling a home, confirm your state's laws regarding a real estate transfer tax and other closing costs. If you're working with a real estate agent, he can explain these to you, but it's always a good idea to do your own research to make sure you understand your specific situation before submitting or accepting an offer on a property.
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