All You Need to Know About Real Estate Transfer Taxes by State in 2023
What is a transfer tax?
A transfer tax is a duty collected on the transfer of property from one individual or entity to another.
Transfer taxes can be applied to a wide range of properties, from real estate and vehicles to securities and inheritances. Generally, buyers and sellers are familiar with real estate transfer taxes by state, but property transfer taxes can be also charged by the county, municipality or even by school boards or by the federal government. Depending on your location, real estate transfer taxes by state can be considered an excise tax.
Inheritance taxes (or estate taxes) are also often considered a type of transfer tax. Transfer taxes are generally non-deductible from income taxes and when a state levies them, they must be paid unless the seller/buyer has been granted exempt status from the taxing authority.
What is a real estate transfer tax?
A real estate transfer tax is a real property transfer tax levied by the government for the act of changing the ownership or title of real estate.
Also referred to as conveyance taxes and realty transfer taxes, they are quite varied and location specific, since there are no federal guidelines on real estate transfer taxes by state, county or city. While some states such as Alaska, Idaho and Texas don’t have real estate transfer taxes by state, a county or city within such a state that can still charge them.
Realty transfer taxes are charged for arms’ length transfers of ownership or title of a real estate property from one person or entity to another. Transfer taxes charged for non-arm’s length transactions, such as inheritance taxes, are often charged at the federal level and must be paid even in states that don’t charge real estate transfer taxes by state.
Get a clear overview of transfer taxes by state by exploring the table below. See the rate of taxation for the purchase of homes in each state along with the expected median transfer tax based on the median sale price of each individual state:
Real Estate Transfer Taxes by State in 2023
What is the difference between real estate transfer taxes vs. deed transfer taxes?
There is no difference between real estate transfer taxes, deed transfer taxes, real estate transfer fees, real estate conveyance taxes, real property conveyance fees, real estate excise taxes, as all refer to the tax paid on the transfer of ownership or title of a real estate property.
Documentary transfer taxes and documentary stamp taxes also refer to real estate transfer taxes — when a property ownership change is recorded, the paid transfer tax is stamped (or embedded) on the deed.
When the sale value of a transaction isn’t immediately available or is undisclosed, the sale price may be determined by using the real estate transfer tax stamped on the deed, since the realty transfer tax is more commonly derived from the sale value rather than an assessed value.
How much are real estate transfer taxes by state?
Real estate transfer taxes by state vary between 1% and 5% and are highly location specific. Some states charge no tax at all, so if no other jurisdiction charges one (such as the county or municipality), no realty transfer tax will be paid.
However, there may be other types of taxes charged to finalize the sale of real estate, such as a recordation tax or mortgage tax. Since payment of these taxes is necessary to finalize a sale, in some areas these terms will be used interchangeably for the notion of real estate transfer taxes.
Property transfer taxes, like all transfer taxes, are an ad valorem charge, meaning that the tax will be calculated from the assessed value of the property or from the sale price. Buyers and sellers may also encounter flat real estate transfer taxes, like in Arizona, where the tax is $2 total for any home sale.
However, most areas charge a percentage of the sale price of the property and less commonly on the assessed value. That percentage can be a universal percentage within that jurisdiction, or it could be a tiered system where the tax rate will depend on the value of the home.
For example, both NYC and New York State property conveyance taxes are levied on a tiered system based on the property’s price, applying increasing rates on more expensive sales. In addition to that, homes above $1 million are subject to the also-tiered mansion tax. In NYC specifically, the transfer tax further increases in a tiered system for homes sold for over $2 million.
The state with the highest real estate transfer tax is Delaware at 4%.
The state with the lowest real estate transfer tax is Arizona which only charges a $2 flat fee.
However, there are also 14 states that do not charge any real estate transfer tax.
What states have no real estate transfer taxes?
The states that do not charge real estate transfer taxes by state are Alaska, Idaho, Indiana, Louisiana, Kansas, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah and Wyoming.
It must be kept in mind that there may be transfer taxes for real estate at the county and city level, even if state transfer taxes are not charged.
Map of Real Estate Transfer Taxes by State
For a quick overview of U.S. transfer taxes by state – also including Washington, D.C. – explore the interactive map below. Hover over or zoom in on each state to quickly see if there are state- or county-level transfer taxes and what their rate is.
What is a recordation tax?
Although commonly confused with real estate transfer taxes, recordation taxes are a different tax that is also charged for a property sale. While real estate transfer taxes by state are charges for the sale itself and are usually calculated from the value of the property, recordation taxes are charged for registering the change in ownership of a property into public records or domains.
Recordation taxes are overwhelmingly paid for by the buyer, regardless of who pays the real estate transfer tax. Recordation taxes also vary by location: Some states charge a separate recordation tax; others will waive it for arm’s length transactions; and others yet will include it as part of the overall realty transfer tax
What is a mortgage tax?
A mortgage tax or mortgage recording tax is charged by certain states, counties or cities to record the obtainment of any new loan transaction and must be paid for any new mortgage or refinancing of a mortgage.
The states that charge mortgage taxes currently are Alabama, Florida, Kansas, Minnesota, New York, Oklahoma and Tennessee, plus Washington, D.C. Mortgage recording taxes are paid directly to the state or any other local authority that may be charging them. Each state has its own specific rate, with Tennessee charging the lowest mortgage tax and New York charging the highest mortgage tax.
Mortgage taxes are generally determined by dividing the total borrowed amount by 100, rounding up to the closest round number and then multiplying that figure with the mortgage tax rate of the jurisdiction it falls into. Similarly to real estate transfer taxes, mortgage taxes are also not deductible. Unpaid mortgage taxes will usually incur a monthly penalty fee, a late fee and may even incur a floating interest rate on unpaid amounts.
Map of Mortgage Recording Taxes by State
For a quick overview of U.S. mortgage taxes by state explore the interactive map below. Hover over or zoom in on each state to quickly see if your state charges a mortgage recordation tax and what the specific rate is.
Who pays the real estate transfer tax?
Who pays real estate transfer taxes is also location specific. Most jurisdictions require the seller to pay them, others put the expense on the buyer, while others still will have a certain percentage charged to both parties. Additionally, unless specifically prohibited by the jurisdiction in which the sale takes place, the party who would legally be required to pay the real property conveyance tax, may negotiate it into a contract for the other party to pay it.
The latter scenario generally reflects the local real estate market’s power dynamics: if it’s a buyers’ market, the seller may pay the tax to entice the buyer, or the buyer may make it a condition of the sale going through for the seller to cover it. At the same time, both parties may end up negotiating splitting the cost equally or at any other rate.
Furthermore, in some areas, if the party responsible for the tax is exempt, the other party will have to cover it. For example, NYC puts the charge on sellers, but requires the buyer to pay the tax if the seller is exempt. Local custom can also play a role, like in Delaware, where the cumulative real estate transfer tax is 4%, and seller and buyer usually split it equally.
Map of Who Pays the Real Estate Transfer Tax by State
For a quick overview of who pays U.S. transfer taxes by state explore the interactive map below. Hover over or zoom in on each state to quickly see if your state charges transfer taxes, whether the buyer or seller has to pay them or if both seller and buyer can share the cost.
When are real estate transfer taxes paid?
Real estate transfer taxes by state, county or city are mandatorily paid before or right at the moment of the deed’s recording. Usually, it is included in the closing costs and paid during the closing process.
Generally, realty transfer fees are a one-time expense and the deed’s transfer from seller to buyer cannot be officially recorded without payment of real estate transfer taxes. The tax is most often collected by the Recorder’s Office, Register of Deeds, Recorder of Deeds or a similar entity specific to each person’s jurisdiction.
Who handles real estate transfer tax payment details?
Typically, real estate transfer tax payment details are handled by the buyer or seller themselves or their attorney, real estate agent or title company. This depends on preference, contractual clauses and local regulations: For example, local guidelines may require the professional handling the payment of the real estate conveyance tax be given power of attorney.
Often, real estate transfer taxes by state, county or city are included in the closing costs to expediate the closing process, with the buyer paying one lump sum for all closing costs and their real estate professional or attorney handling the distribution of all taxes and fees to the appropriate authorities.
Who is exempt from paying transfer taxes?
Some places may provide real estate transfer tax exemptions or reductions for certain population groups such as low-income individuals and households, seniors and people with disabilities. Real estate transfer tax exemptions may also be provided for first-time buyers.
Overall, the only way to not pay real estate transfer taxes by state is to move to a real estate transfer tax-free state and look for a county and municipality that doesn’t charge a local realty transfer fee either. For example, while there is no real estate transfer tax by state in Oregon, Washington County does charge them, as its transfer tax was already in place prior to the 1997 statewide ban was consequently grandfathered into the law.
Other ways to reduce the amount is to use the tax paid to one jurisdiction as a deduction or credit for property transfer taxes charged by an overlapping jurisdiction. In some areas, the government may consider real estate transfer taxes optional. In such cases there may be no real estate transfer taxes by state nor a ban on charging them, thus leaving it up to counties and municipalities to decide whether to bill realty transfer taxes.
Real estate transfer tax exemptions may be provided for:
- Government agencies, institutions, entities and companies
- Religious organization
- Certain non-profit organizations
- Transfers of burial sites.
- Non-arms’ length property transfers such as between divorcing spouses, sales from parent to child, or conveyances of ownership within a will.
What is the difference between real estate transfer taxes and property taxes?
Among the differences between real estate transfer taxes and property taxes is that property taxes are charged yearly as a recurring tax and are an important revenue source for governments that charge them, while real estate transfer taxes are generally a one-time fee and raise significantly less funds for taxing authorities.
Another way to look at the difference between them is that property taxes are charged for the right to own property, while real estate transfer taxes are charged for the right to buy or sell real estate properties.
Map of Real Estate Transfer Taxes and Property Taxes by State
For a quick overview of U.S. transfer and property taxes by state explore the interactive map below. Hover over or zoom in on each state to quickly see if your state charges transfer taxes, property taxes or both.
Do you have to pay real estate transfer taxes in non-arm’s length transaction?
Whether you have to real estate transfer taxes in non-arm’s length transactions depends on the type of transaction and the location. Real estate transfer tax exemptions may be provided to non-arm’s length transactions such as transfers between parents and children, divorcing spouses or inheritances. However, such property ownership transfers may be subject to federally imposed transfer taxes such as estate taxes, death taxes, gift of property taxes and more.
What are gift of property taxes?
Gift of property taxes or gift taxes are real estate transfer taxes paid on property that changes ownership by one party gifting it to the other. A gift of property tax may be applied to changes in property ownership where the donor receives no financial compensation or receives a financial compensation lower than the full value of the property. The rate for a gift of property tax will depend significantly upon the fair market value of the property.
One way to circumvent paying gift of property taxes is to gift the property to the recipient via a grant deed, assigning a purchase price for the property and having the recipient sign multiple promissory notes that equal the purchase price of the property. Make sure each promissory note stays under the 2023 annual gift limit of $17,000, then forgive one note per year until all promissory notes have been forgiven.
What are estate taxes?
Estate taxes — also referred to as death taxes — are a type of tax paid to the federal government for inheritances of properties valued at $12.92 million or for inheritances where the gross value of all assets and/or gifts given by the deceased person to the inheritor surpass $12.92 million. In the case of married couples, that exemption is double: $25.84 million. Most of the population does not have to pay estate taxes — in fact, only about .1% of the population is subject to them.
What are inheritance taxes?
Inheritance taxes are state transfer taxes paid on inheritances of any type, including property and currently collected by six states: Iowa, Kentucky, Maryland, Nebraska, New Jersey, and Pennsylvania. They can range between 1% and go as high as 18% and are often tiered. Life insurance payouts are also usually not included in inheritance taxes.
The difference between estate and inheritance taxes is that while estate taxes are applied to the full estate of a deceased person prior to the estate being distributed to the designated beneficiaries, inheritance taxes can also be applied to beneficiaries after they have received their inheritances. Other exemptions may include lineal descendants, ascendants and their spouses, while in other cases the beneficiaries are exempt if the inheritance is smaller than a state-defined threshold.
What is the generation-skipping transfer tax?
The generation-skipping transfer tax or GST is a type of surtax charged for any type of transfer of property ownership that skips a generation. Generation-skipping transfer taxes were created to prevent high-net-worth individuals or families from circumventing the estate tax by bequeathing gifts or inheritances to grandchildren or younger generations instead of their children.
What is an excise tax?
Excise taxes are a charge levied on certain goods, as well as services and activities and can be billed to either the buyer (consumer) or the seller (manufacturer, retailer, service provider etc.). Many types of excise taxes are paid to the IRS and have no relationship or impact on income taxes. This is because excise taxes as well as transfer taxes are usually an ad valorem tax, meaning they are calculated based on the value of the item changing ownership. That value may be an assessed value, or the sale price of the goods or services being taxed.
What is a luxury tax?
A luxury tax is a form of excise taxes applied to luxury goods such as personal aircrafts, furs, jewelry, luxury cars and boats, among other high-end, non-essential items. Some luxury taxes can also function as property taxes as well, such as New York’s famed mansion tax.
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