Do You Incur Property Taxes If You Transfer a Deed?
Two types of general taxes on real property exist throughout the United States. Property taxes are assessed by the state, county, or local municipality based on the value of the home and surrounding homes, and amount of land owned. Transfer taxes are generally assessed when a property is sold. When a deed transfer is completed, the seller is customarily responsible for paying certain portions of the taxes, as agreed upon in the contract.
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Deed Transfer
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When a property is sold from one party to another, the transfer of ownership is completed by a deed. Often, a warranty deed is used to convey the rights to the title, plus a warranty that the title is free and clear of any defects or liens. After the deed is signed, it must be filed on record with the county. The county maintains property ownership records in order to bill for property taxes. At the time of recording, the transfer taxes will be assessed if applicable.
Property Taxes
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Property taxes fund various services for citizens such as public schools and roadway maintenance. These taxes are assessed annually or biannually. Bills are sent to the current property owners who appear within the county records system. If the owner does not occupy the home as a primary residence, then the tax bill will be sent to the address used on the deed at the time of recording. The cost of property taxes throughout the country varies drastically.
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Transfer Taxes
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Transfer taxes are assessed once -- at the time a home is sold. The tax is based on the consideration, or sales price, listed on the deed. Generally the fee charged is a dollar amount per $1,000 of the consideration. This fee can be paid by either the seller or the buyer of the property. The agreement may be enforced by the state, or included in the details of the sales contract. However, some states offer certain exemptions or reductions for transfer taxes in certain situations. For example, most Maryland counties offer a first-time home buyer exemption on the transfer tax rate to those who qualify.
Closing Costs
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The final document signing for the property transfer is known as the closing, the time when all details are finalized. At this time, the seller is responsible for making sure certain payments are up to date. Usually, this includes paying the property taxes up to the date of the sale. This could mean paying a certain percentage of the yearly tax. For instance, if the property sells in March, the seller should essentially pay a quarter of the property taxes.
Considerations
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As the seller of a home, it is important to verify that the deed transferring your name out of ownership is filed on record. If it isn't, you will continue to receive the property tax bills. Failure to pay these bills can result in a lien being placed on a property that you technically do not own anymore.
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