Real Estate Transfer Tax Act

Most states mark the amount of the Real Estate Transfer Tax on the first page of the document, rather using stamps.

When transferring real estate--whether it is residential, commercial or industrial--most states require you to pay a transfer tax. This tax is levied on the seller and sometimes the buyer has to absorb the cost. The more costly the real estate transferred, the higher the tax. In some states, the tax is assessed on long-term leases.

History

The transfer of real estate can be costly.

Before 1968 and the Real Estate Transfer Tax Act, the federal government had the right to levy a transfer tax upon the transfer of title to real property or real estate. The real estate could be residential, commercial, or industrial. The payment, evidenced by a red stamp on the document was $.55 per $500. The District of Columbia and all but 13 states, after the repeal of this federal tax effective Dec. 31, 1967, instituted their own real estate transfer tax. Many states list cases in which the tax is exempt.

Function

Some states use the real estate transfer tax to fund their parks.

Many of the states that enacted the Real Estate Transfer Tax Act use the revenues in their general fund. Some states allow the transfer tax to be collected at the local level. The transfer tax is used to acquire parks, open space, low-income housing, mitigation and other natural resource protection initiatives. Even though, the transfer taxes can inflate real estate values and slow the real estate market, its dedication to popular land protection programs causes it to be accepted.

Tax Rate Effects

The rate of real estate taxes varies by state.

The state determines the rate at which the taxes will be calculated. The higher the price of the transfer, the higher the amount of taxes collected. This can have a huge affect on closing costs. The tax does not take into consideration the burden it places on low income households. The tax rates are the same for everyone. A higher percentage of income is utilized of the lower income household than the higher income household.

For example, a household with an income of $25,000 a year will have a larger portion of their income used toward real estate transfer taxes than someone making $100,000 a year. The lower-income household paying $750 in transfer taxes uses 3 percent of their gross income towards the tax. The higher income household paying $1500 (twice as much) uses only 1.5 percent of their gross income.

Discriminatory

Real Estate Transfer Tax Act is only assessd on one asset, real estate.

The Real Estate Transfer Tax Act is discriminatory because it allows taxes to be levied on the transfer of one asset only, real estate. There are no such taxes on cars, stocks or other assets when transferring from one person to another. With real estate being the largest purchase made, the state is using this to collect taxes to fund what is needed in the community.

Potential

The Real Estate Transfer tax Act has the potential to be better with some changes.

The Real Estate Transfer Tax Act has the potential to be good source of revenue, but some changes should be made to make it more equitable. There should be a lower tax rate for the lower income households vs. higher-income households.

References

• National Association of Realtors
• The Trust for Public Land