What Are Real Estate Transfer Taxes?

Amy FontinellePersonal Finance Expert

Amy Fontinelle is a freelance writer, researcher and editor who brings a journalistic approach to personal finance content. Since 2004, she has worked with lenders, real estate agents, consultants, financial advisors, family offices, wealth managers, insurance companies, payment companies and leading personal finance websites. Amy also has extensive experience editing academic papers and articles by professional economists, including eight years as the production manager of an economics journal.

Rachel WitkowskiCorrespondent/Editor

Rachel Witkowski is an award-winning journalist whose 20-year career spans a wide range of topics in finance, government regulation and congressional reporting. Ms. Witkowski has spent the last decade in Washington, D.C., reporting for publications including The Wall Street Journal, American Banker and Bankrate. Ms. Witkowski's deep knowledge of government and policy aided a series of investigative stories that triggered congressional hearings on employee claims of discrimination at a federal agency and how indirect auto lenders were being reviewed by regulators.

Amy Fontinelle,

Amy FontinellePersonal Finance Expert

Rachel Witkowski

Rachel WitkowskiCorrespondent/Editor

Personal Finance Expert, Correspondent/Editor

Updated: Dec 14, 2021, 6:00am

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Most states charge real estate transfer taxes when one entity sells or gives real property to another entity. Counties, cities, townships and boroughs may charge these taxes, too. If you’re buying or selling a home, these taxes may affect how much you pay for the property or how much you pocket from the sale.

The real estate transfer tax fee may be based on the property’s sale price or on its assessed value, and it must be paid before the deed can be recorded. As such, title and escrow companies will usually include this tax in the closing costs for a real estate transaction.

Real estate transfer taxes may also have alternate names, depending on the location:

Real property transfer tax
Realty transfer tax
Recordation tax
Documentary transfer tax
Conveyance tax
Documentary stamp tax
Deed transfer tax

Who Pays for Real Estate Transfer Taxes?

Depending on the jurisdiction, the tax may be paid by the buyer or seller, or both. Here are some examples based on specific locations.

In Delaware, the party transferring the property and the party receiving it are supposed to split the tax.
Philadelphia suggests the buyer and seller split the 4.278% tax, but says it’s not a legal requirement.
Customarily, the seller pays the tax in Southern California while the buyer pays it in Northern California, according to Viva Escrow, a Southern California escrow company. In Central California, it can be a combination of both the buyer and seller.

Where Do the Payments Go?

Real estate transfer taxes go to the government, but which government entity gets the money and how much they get varies by location. For example, in New Jersey, the state and the counties share the proceeds of the 1% tax. In Pittsburgh, the municipality gets 3%, the school district gets 1% and the state gets 1%.

Governments can use the money in various ways. Possibilities include conservation or open space protection, low-income and affordable housing programs, public transit, bridges, sidewalks, parks and schools.

How Much Can Real Estate Transfer Taxes Cost?

Real estate transfer taxes are usually based on a small percentage of the property’s value, but in areas where real estate values are high, taxes can add considerable sums to closing costs. You’ll see this in places like Washington, New Jersey, the District of Columbia and Hawaii.

Here are some examples of how much real estate transfer taxes can cost:

The residential property transfer tax in New Jersey, where the tax is called a realty transfer fee, is 1%.
The District of Columbia imposes a deed transfer tax of 1.1% on residential property worth less than $400,000 and 1.45% on property worth more than $400,000.
Delaware’s realty transfer tax is 3%. In Delaware, counties that impose their own 1.5% transfer tax, the state adds a tax 2.5% for a combined rate of 4%.
Los Angeles County’s documentary transfer tax costs 55 cents per $500 of property value. Properties located in certain parts of the county, including the city of Los Angeles, Culver City, Santa Monica, Redondo Beach and Pomona are also subject to additional taxes of up to $6 per $1,000 depending on the total value amount.

Some jurisdictions that charge real estate transfer taxes may lower or waive them for certain individuals such as seniors, the disabled, low-income households and first-time homebuyers. Also, certain types of transactions, such as a sale from a parent to a child, transfer from one spouse to the other in a divorce or a transfer under a will, may also be exempt from real estate transfer taxes.

Failure to pay real estate taxes, including trying to avoid them by misclassifying the transaction, can result in penalties. Philadelphia, for example, will add up to 50% of the tax due as a penalty.

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Real Estate Transfer Taxes vs. Other Taxes

Real estate transfer taxes aren’t the only taxes homebuyers and sellers may have to pay.

While not a tax, a closely related expense is a deed recording or filing fee. This is an administrative fee that covers the cost of entering the change of property ownership into the public record.

A few states impose a mortgage tax, mortgage registration tax or mortgage registry tax for “the privilege of recording a mortgage on real property” in the state, as New York puts it.

There’s also estate taxes, which might sound like a type of tax imposed on a mansion, but they’re actually death taxes. The federal government and some state governments charge estate taxes when someone with millions of dollars worth of assets dies.

Property taxes are a recurring expense that the owner will pay for as long as they own the property. Property taxes are deductible if you itemize your deductions on your income tax return.

Real estate transfer taxes are not deductible. Instead, they increase the property’s cost basis for the party that pays them. This may reduce how much income tax that party owes if they sell the property at a substantial gain. The first $250,000 or $500,000 in capital gains when you sell your primary residence are not taxable, depending on whether you’re single or married.