Transfer Tax

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Transfer Tax

What is a transfer tax?

A transfer tax is a government charge on the transfer of ownership or title to property from one person or entity to another. It can be imposed by state, county, or municipal authorities and is usually based on the value of the property being transferred. Transfer taxes commonly apply to real estate transactions and to transfers that occur at death (estate/inheritance taxes).

How transfer taxes work (real estate)

  • The tax is assessed when legal title, deed, or certificate is transferred.
  • The amount is typically calculated as a percentage of the property’s value or as a fixed dollar amount per $1,000 of value.
  • Responsibility for payment varies by jurisdiction:
  • Often the seller pays the real estate transfer tax.
  • In some places the buyer pays, or the cost is split.
  • Certain states require the buyer to pay if the seller is exempt or does not pay.
  • Some states do not impose a real estate transfer tax (examples include Alaska, Arizona, Idaho, Indiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Texas, Utah, and Wyoming).

Example calculation:
– For a 1% transfer tax on a $300,000 property: $300,000 × 0.01 = $3,000.

Transfer taxes on inheritances and estates

  • Estate tax: Levied on a deceased person’s gross estate (assets and property). At the federal level, only estates above the exclusion threshold are subject to tax.
  • Inheritance tax: Levied on the recipient of the inherited property (owed by beneficiaries, not the estate).
  • Gift tax: Applies to transfers made while the giver is alive. The giver must report gifts above the annual exclusion.
  • Current federal thresholds (for planning reference):
  • Estate tax exclusion: $13.99 million (applies to estates exceeding this amount).
  • Annual gift tax exclusion: $19,000 per recipient (gifts above this must be reported and may count against the lifetime exclusion).
  • These federal thresholds mean most estates do not owe federal estate tax; however, state-level estate or inheritance taxes may still apply.

Generation-skipping transfer tax (GST)

  • GST is an additional tax on transfers that skip a generation (for example, from a grandparent directly to a grandchild).
  • It exists to prevent avoidance of estate tax by skipping a generation.
  • The GST uses the same large exclusion amounts as the estate tax; transfers below the exclusion are generally exempt.

State transfer taxes

  • Some states impose estate taxes, inheritance taxes, or both. Approximately 18 states plus the District of Columbia have either an estate tax or an inheritance tax; Maryland levies both.
  • Estate tax is paid by the deceased person’s estate. Inheritance tax is paid by beneficiaries and rates/exemptions vary by state and by the beneficiary’s relationship to the decedent.

Other names for transfer tax

Depending on the jurisdiction and context, transfer taxes may be called:
– Stamp tax
– Deed tax
– Documentary transfer tax
– Mortgage registration tax
– Recordation tax

Calculating transfer tax

  1. Determine the applicable rate in the state or local jurisdiction (percentage or per-$1,000 amount).
  2. Multiply the property’s taxable value by the rate.
  3. For inheritances/estates, determine whether federal or state exclusions apply and whether the taxable value exceeds the exclusion.

Key takeaways

  • Transfer taxes are charges on the transfer of title or ownership of property and can apply to real estate sales and inheritances.
  • Who pays depends on local law and the type of transfer: sellers often pay real estate transfer taxes; estates or beneficiaries pay estate/inheritance taxes as applicable.
  • Federal estate and generation-skipping transfer taxes apply only above very large exclusions; most individuals are protected by the current federal exclusion amount.
  • State rules vary widely—check local law or consult a tax professional for specific obligations and rates.

Bottom line

Transfer taxes are a common cost associated with moving property or assets between owners, whether during life or at death. Understanding whether a transfer tax applies, who is responsible for paying it, and any applicable exclusions will help you plan for and manage these obligations.