This is the second of a short series of posts about the transfer of property — the first was about title insurance. Other things we’ll look at in this series: deeds, and escrow or closing.
Purchasing a property can be confusing because of all the ins and outs of the process — legal issues, insurance, closing costs, loans, what to do when, home inspections, radon tests, etc. On top of all that, there are tax aspects to the transfer of property from one party to another. To clear the air and ease your mind as a buyer (or seller), lets discuss these tax issues.
The three primary real estate taxes are property tax, special assessments, and transfer tax.
Property tax is assessed on a regular basis (usually annually) and is typically based on the value of the property. It may be the source of an encumbrance (a burden on a property, such as a mortgage). States and local governments can tax real property, and they can seize it and force its sale to satisfy any unpaid taxes. Ugh. Another great reason to pay your bills!
In most cases, property tax owed is determined by the value of the property. To find the value of a property, the local government assesses each property in its jurisdiction and takes into consideration all real property — or anything that is “fixed” to the property, like the house, garage, barn, fences, etc. Sometimes, folks feel that they have been unfairly assessed, in which case they can appeal to the appropriate local board.
By the way, you can see the tax rates (including property tax) in our area in our Relocation Guide’s tax section.
Special assessments are taxes collected to fund a specific and localized improvement. Think sidewalks, sewer hookups, playgrounds in the neighborhood.
Transfer taxes are local taxes that must be paid when a property is sold, leased, or otherwise transferred to a new owner. The amount taxed is based on the sale price.
Here are the local transfer taxes:
- State Tax Stamps: $0.25 /100 (paid by buyer and calculated on Sales Price and/or Loan Amount)
- Local Tax Stamps: $0.833333 /1000 (paid by buyer and calculated on Sales Price and/or Loan Amount)
- State Grantors Tax: Sales Price x $.001 (paid by seller)
As an important side note: there is also such a thing as a Capital Gains Exemption. This allows those who are selling their non-investment, residential property to avoid having to pay otherwise applicable income tax on profits of more than $250k (single) or $500k (married) from the sale of their principal residence. In other words, if you own and have lived in your home for a long time and are not selling solely to make a profit, you are exempt from the Capital Gains Tax. (If you are flipping, get ready to be taxed!) For more detailed information about your specific situation, consult a tax advisor.
Questions about taxes or the purchase process? Let us know (or comment below)! We’ll be happy to help in any way that we can.