Real Estate Transfer Taxes: What Is This Little-Known Extra Cost to Sell Your Home?
One fee tacked onto your final settlement is the real estate transfer tax. Find out how much your state charges with our easy chart.
The act of selling a house costs money. So even though you’re the one getting a big check, you’ll also receive a closing statement listing all of the charges you owe (how fun, right?)
One little fee tacked onto your final settlement is the real estate transfer tax, also known as a deed transfer tax, stamp tax, conveyance tax, or documentary transfer tax — and it’s not one many sellers instantly recognize.
Ultimately, the purpose of this tax is the same as others: to generate revenue for your state, county, or city (and sometimes all three).
Step one: Talk to an expert!
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“In California, it’s a fact of life,” says Brett Wasserman, a partner who handles real estate law at the legal offices of Marc Bronstein in Santa Monica, California. “When you have cities and states that have lots of services that they provide, they have to raise that revenue somehow.”
First, we’ll take a look at this particular line item in your closing costs in the hope that a better understanding of this fee makes it less mentally taxing. Once you’ve got a firm foundation, consult our comprehensive chart with a list of the transfer tax rates across all 50 states.
What are real estate transfer taxes?
A real estate transfer tax is a fee you pay to a state, county, or municipality for “the privilege of transferring real property within the jurisdiction.”
Depending on where you live, the tax can be a flat fee or an amount specified per every $100, $500, or $1,000 of the transferred property value. (Wasserman describes that as exclusive of any liens.) For example, Arizona charges a flat fee of $2 while West Virginia charges $1.10 for each $500 value.
Most fees range from under a dollar per $100 or $500 to roughly $1 to $3 per $1,000 of the transferred net value. California’s Revenue and Taxation Code charges $1.10 per $1,000 of the transferred net value, or 55 cents per $500, Wasserman says.
Municipalities also have the ability to levy additional transfer taxes. In Los Angeles County, for instance, five cities charge an additional fee: 0.45% to 5.95% for Los Angeles; 0.045% to 0.4% for Culver City; 0.3% to 5.6% in Santa Monica; and $2.20 per $1,000 for Pomona and Redondo Beach.
San Francisco’s fees vary based on the net sale price, ranging from 0.5% for property up to $250,000 and 6.0% for property that nets more than $25 million.
So if you sold a Santa Monica beach property for $2 million, you’d owe $2,200 to Los Angeles County and $6,000 to the City of Santa Monica — a total of $8,200 in what the state calls “documentary transfer tax.”
No wonder your real estate agent needs a calculator handy!
What’s more, some states charge additional transfer taxes based on an area’s population or vary the rate depending on whether the property being transferred is residential or agricultural.
Who pays transfer taxes at closing: the buyer or seller?
In the above example, the seller is on the hook for paying real estate transfer tax. But the municipality decides who pays what. Sometimes, the buyer pays this tax, sometimes the seller does, and sometimes a buyer and seller split the cost.
In Chicago, Illinois, for example, the buyer pays $3.75 per $500 of the net sale while the seller pays $1.50 per $500 — a total of $5.25 per $500 of each sale, according to Craig Fallico, a veteran real estate agent serving the Chicago suburbs.
Real estate transfer tax is something both parties can negotiate, much like other fees in a real estate transaction. The county recorder technically doesn’t care who files the fee, as long as it’s paid when the paperwork is filed.
