How does the Real Estate Transfer Tax Work?

The real estate transfer tax is a state and local tax that is applied when a real property, or interest in real property, is transferred between parties. It can also apply to all contractual transfers. The real estate transfer tax can be imposed on both the buyer and the seller in some states, and the tax is based upon the agreed price of the property. This is paid at closing, and is usually handled by the attorney present.

What is the Tax Based On?

Tax rates vary from state to state and some jurisdictions offer exemptions for certain buyers. Further exceptions to the tax come in the form of a non-contractual transfer of property. Essentially, if the property is a gift or a transfer between spouses after a divorce for example, then this would qualify for exemption from the real estate transfer tax. It is always worth checking with your realtor to find out the specific rules in your locality.

Some states allocate the funds from the real estate transfer tax to specific projects like land conservation while others add to it to the state’s general fund.

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