When you sell your home, there are costs you'll often incur in the process. If you use a real estate agent, for example, you'll need to pay him or her a commission, which could be as much as 5% or 6% of your home's sale price. And depending on where you live, you may be liable for real estate transfer taxes.
What are real estate transfer taxes?
When a home is sold, the deed to that home is transferred from one owner to another. Often, the state, city, or county you live in will charge a tax, or fee, for you to complete that transaction. That fee is known as a real estate transfer tax (though you'll sometimes hear it referred to as a deed transfer tax). Not every state imposes real estate transfer taxes, but if yours does, the amount you pay will generally be a percentage of the amount your home sells for, as dictated by your state, county, or city.
Keep in mind that real estate transfer taxes are different from property taxes -- those are ongoing taxes you pay for owning a home. A real estate transfer tax is a one-time fee that happens after a home is sold. Furthermore, whereas property taxes can be tax-deductible, real estate transfer taxes, unfortunately, are not.
Who pays real estate transfer taxes?
Generally, the seller is the party liable for paying real estate transfer taxes, but this isn’t always the case. Sometimes the buyer pays all or part of this tax as well.
How much are real estate transfer taxes?
The amount you'll pay in real estate transfer taxes will depend on where you live. In parts of Pennsylvania, it can amount to more than 4.5% of a home's sale price. In Delaware, it's up to 4% of that figure. And in New York State, the transfer tax rate is $2 per $500 of a home's sale price, plus a 1% mansion tax for homes that sell for $1 million or more (though in New York City, transfer taxes can reach 2.625% of a home's sale price).
The takeaway? If you're planning to sell your home, do some research to see whether you'll be on the hook for real estate transfer taxes, and if so, what figure you're looking at. You can search for that information online, or call your county's financial office to ask for an estimate.
Now if you live in the following states, you're in luck, because they don't impose a real estate transfer tax:
- Kansas (no transfer tax, but there is a small mortgage registration tax)
- New Mexico
- North Dakota
- Oregon (except for Washington County)
Also, while Arizona does have a real estate transfer tax, it’s a flat $2 fee -- not exactly a life-changing sum. Furthermore, depending on which part of California you live in, you may avoid a transfer tax as well when you sell a home.
Additionally, some states have different rules when there's a first-time homebuyer involved. Depending on the circumstances at play, there may be no transfer tax or a reduced tax.
Real estate transfer taxes are an unavoidable part of the home sale process in some parts of the country. Find out if you’re responsible for paying them ahead of time to avoid financial surprises once that closing goes through.