Real estate transfer fees are one of several costs paid at closing. What is this fee, who pays it and how much is it?
The government’s cut of the fee
Typical costs paid at closing by the seller or buyer include title insurance, agent commissions, attorney’s fees and more. About two-thirds of states also include some form of real estate transfer fees that state or local governments collect.
Though this fee is a tax, states refer to it by a number of names: real estate transfer fee, real estate transfer tax, title transfer fee, real property conveyance fee, deed recording fee or conveyance fee, among others. Often the payment of the tax is reflected by a stamp on the official title document.
Typically, the seller pays this fee, although some states split the fee between buyer and seller. If the parties decide among themselves to split the fee, this agreement should be spelled out in the real estate contract. Most states figure the tax as a percentage of the sales price. The percentage can run as high as five percent. Other states figure the tax based on dollar increments of the sales price. For example, New York state charges $2 for each $500 of the home’s sales price. Some cities impose an additional percentage on homes priced over a certain threshold, such as $1 million.
Some states split the real estate transfer fee with the county in which the sale occurs.
Not a property tax
The real estate transfer fee is not the same as your property taxes that are due annually. The transfer fee is imposed only when property is sold and is essentially a one-time sales tax. Property taxes are paid annually as a percentage of the appraised value of the property.
The transfer fee cannot be deducted from federal income taxes. But if you pay it as a buyer, the real estate transfer fee is considered part of your cost basis in the home for figuring any capital gain when you sell.
If a buyer pays a real estate transfer fee on the purchase of a rental or investment property, the fee is deductible as a work-related expense.