When it comes to real estate transactions, transfer taxes can significantly impact the overall cost, depending on where you are located. Whether you’re buying a brownstone in Brooklyn, NY, or selling a ranch-style home in Tucson, AZ, understanding how transfer taxes work is crucial for managing costs and negotiating effectively.
In this comprehensive guide by Redfin, we will delve into the details of transfer taxes – what they are, who pays them, how much they can amount to, and how they vary based on state and circumstance.
Understanding Transfer Taxes in Real Estate
Transfer tax is a fee imposed by the government on the transfer of property ownership from one party to another. In the realm of real estate, this tax is typically levied when a home or parcel of land is sold, and ownership is legally transferred.
These taxes are typically imposed at the state, county, or municipal level, and are calculated based on the property’s sale price or assessed value. They may also be known by other names such as deed tax, stamp tax, conveyance tax, or real estate transfer tax, depending on the jurisdiction.
Instances When Transfer Taxes Apply
Transfer taxes are commonly applicable in the following scenarios:
- Residential home sales
- Commercial property transactions
- Gifts of real estate
- Inheritance of property
While some may assume these taxes are included in other fees, it’s important to note that transfer taxes are separate charges that can vary significantly based on the property’s location.
Responsibility of Paying Transfer Tax – Buyer or Seller?
In most states, the seller is typically responsible for covering the transfer tax. However, this responsibility can vary by location and may be shared or negotiated between the buyer and seller.
Here are a few examples:
- California: Sellers usually pay the county transfer tax, while some cities may add an extra tax that can be subject to negotiation.
- Pennsylvania: Both buyers and sellers often split the tax equally.
- Texas or Montana: These states do not impose a real estate transfer tax.
It’s essential to review your purchase agreement and local regulations to determine the party responsible for the transfer tax.
Calculating Real Estate Transfer Tax
The amount of transfer tax you owe is dependent on the property’s location and value. Typically, transfer tax rates are expressed as:
- A percentage of the sale price (e.g., 0.5% to 2.0%), or
- A fixed amount per $100 or $500 of value.
To calculate your transfer tax obligations, follow these steps:
- Know the sale price of the property.
- Check the local transfer tax rate.
- Apply the rate. For example, if your state charges 1.25%, multiply the sale price by 0.0125.
- Add any municipal surcharges (some cities may have additional rates).
- Explore exemptions or discounts, such as those for first-time buyers or family transfers.
States Without Transfer Taxes
Fourteen states do not impose a statewide transfer tax:
Alaska, Idaho, Indiana, Louisiana, Kansas, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon (most counties), Texas, Utah, and Wyoming.
While these states may not have these specific taxes, they may still charge recording fees or administrative costs during the closing process.
Deductibility of Transfer Taxes
Transfer taxes cannot be deducted from your federal income tax return. However, you can add them to the property’s cost basis, potentially reducing the capital gains tax upon sale. This can be advantageous for investors or homeowners selling after a prolonged period of ownership.
Transfer Taxes on Inheritances and Gifts
Apart from traditional transfer taxes involved in property sales, other taxes may come into play when property is transferred through inheritance or gifting.
Here are the key types to be mindful of:
- Estate Tax: Paid by the deceased’s estate, applicable only if the estate surpasses the federal exemption threshold. ($13.99 million in 2025)
- Inheritance Tax: Levied on the beneficiary, in select states like Maryland, Iowa, and Kentucky.
- Gift Tax: Applicable to gifts of property or money during one’s lifetime. A limit of $19,000 per recipient in 2025 can be given without triggering this tax.
- Generation-Skipping Transfer (GST) Tax: Applicable when property skips a generation (e.g., from grandparent to grandchild), with the same federal exemption as the estate tax.
These taxes are designed to prevent the circumvention of estate taxes by transferring assets across generations outside of a conventional will.
Impact of Transfer Taxes on Affordability in 2025
As mortgage rates fluctuate and home prices rise in many U.S. markets, closing costs – which include transfer taxes – are becoming a significant factor affecting both buyers and sellers.
According to Redfin data, the median sale price of a U.S. home in Q1 2025 is $432,500. In a state with a 1% transfer tax, this would add $4,325 to the selling cost, in addition to agent commissions and other expenses.
The Importance of Understanding Transfer Taxes
Whether you’re investing in real estate in Chicago or inheriting property in San Diego, having a clear understanding of transfer taxes can assist you in estimating your total transaction expenses. These fees vary widely by state and can have a significant impact on your financial outcome in high-value markets.
If you’re uncertain about how transfer taxes apply to your specific scenario, consult with a local real estate agent or real estate attorney before finalizing the deal.
Frequently Asked Questions about Transfer Taxes
Transfer taxes are one-time fees imposed by the local government when the deed or title is transferred to a new owner.
No, property taxes are recurring annual fees, while transfer taxes are charged only once at the time of sale.