Each time a property is sold or ownership is transferred, a deed is signed to complete the transaction. Many states impose taxes on deed transfers. Although each state governs its own rules regarding the tax, some states refer to it as deed stamps or deed tax stamps. Taxable deed stamps are collected only once, at the time the deed is submitted for recording.
Deeds are the real estate documents that function to legally convey ownership rights between two parties. Aside from a sale, deeds can also be used to add or remove someone as an owner. Primarily, warranty deeds and quitclaim deeds are used in the U.S. Both of these documents include the names of the grantors (current owners or seller) and grantees (new owners or buyer), the consideration paid for the property and a legal description of it. Generally the consideration is the purchase price in a sale or an insignificant dollar amount, such as $1.00, if the transfer is a gift.
There is no federal tax on property transfers, although individual states are allowed to collect taxes. Most states do impose some type of tax on deeds. The cost of the tax is generally assessed at a certain rate of the purchase price. For example, a state might charge $1.50 per every $500 of the consideration. If you paid $150,000 for the home, the tax is equal to $450. Payment for the tax is typically due when the deed is taken to the county clerk to be filed on record. The buyer or the seller can pay the tax. In some areas of the country, it's customary for one or the other to pay, while in other areas it can be negotiated as part of the sales contract.
State laws determine what, if any, specific types of transactions are considered exempt from paying deed stamp taxes. In general, transfers between spouses and parents and children are often exempt. You cannot deduct transfer taxes you paid during the year for your federal income tax return. However, the amount paid can be factored into the basis cost of the home if you paid it as a buyer. Paying the tax as a seller is considered to be an expense and is allowed to be deducted from the total profit made on the sale.
Each state that imposes a deed transfer tax determines the tax rates, how to collect and what to call them. Some states -- include Florida, South Carolina, Massachusetts, Oklahoma and Pennsylvania -- refer to the tax as a stamp or deed stamps. Typically the actual deed is stamped with some type of marking or information stating that the tax has been paid and for what amount before it is saved on record. Because the information regarding this tax varies so greatly, you'll need to contact your local county clerk or recorder for more details.
- Knoll Real Estate: About Taxable Deed Stamp
- Florida Department of Revenue: Documentary Stamp Tax
- Internal Revenue Service: Topic 503 - Deductible Taxes
- Buying Charleston Real Estate: What Are South Carolina 'Seller' Deed Stamps?
- National Confrence of State Legislatures: Real Estate Transfer Taxes
- Stewart: Deed Stamps and Exemptions
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