A Guide to South Carolina Real Estate Transfer Tax

No one likes to pay taxes, and South Carolina manages to levy taxes on many transactions, including real estate. Anyone involved in a real estate transfer might also need to pay a tax for transferring the property. Generally, in South Carolina, the seller pays the tax to the state as a deed recording fee. Read on for more information about this and other taxes. If you need a lawyer for wills and probate or real estate transfer, reach out to Surasky Law today.

Why Does South Carolina Charge a Real Estate Transfer Tax?

The tax is essentially a deed recording fee. Any change in a deed must be recorded in public records, so the state finds it convenient to charge a fee to cover the cost. This fee must be paid any time the property changes ownership.

In South Carolina, all fees are usually due at closing, and this includes the transfer tax. It is the custom for the seller to pay the fee, but you could also negotiate with the buyer to split the fee.

How Much is the Transfer Tax?

Although you pay the tax to the county where the property is located, the state sets the rate. Currently, the rate is $1.85 per $500 in value. The state and the county split the taxes between them.

Imagine that you sell your home for $300,000. You can calculate as follows:

$300,000 divided by $500 = 600

600 x $1.85 = $1,110.00

If you do not want to pay this amount, you should try to get the buyer to contribute to the fee.

What Other Fees Will You Pay?

You might end up paying additional fees as part of a real estate transaction. Some of the more common include:

· Escrow Fees. Buyers and sellers will split an escrow fee. The escrow handles the funds involved in your transaction, and the fee depends on your sale price and other factors.

· Title Fees. A seller can only transfer any title that they own. Believe it or not, sometimes the seller doesn’t own the property, or else the title is encumbered. Title insurance protects the buyer in the event there are problems with the title, like judgments or liens. The seller usually pays for title fees.

· Agent Commissions. If you use a real estate agent, you need to factor in their commission, which is what you pay for their services. Typically, commissions are paid as a percentage of the sale price.

Home buyers often fail to fully account for how fees will inflate the amount they need to pay (and borrow). You should fully understand what fees will apply to your transaction. Helpfully, you might negotiate sharing or splitting the fees with the other side.

What Other Taxes Apply to Real Estate?

The real estate transfer tax is not the only tax that could take a bite out of your savings account. You could also end up paying additional taxes after selling your property or while owning it.

State Capital Gains

Assets can gain in value while you own them. When you sell the asset, you ultimately will need to pay taxes on the increase in value or the capital gains. The capital gains tax in South Carolina is 7%. There is also a federal capital gains tax.

To calculate your state capital gains tax, you will need to deduct the “cost basis” from your sale price. The cost basis is typically what you paid for it, plus any improvements you have made while owning it. You deduct this amount from the sale price.

Calculating the capital gains tax is complicated. You can deduct 44% of net capital gain from your taxes, which ultimately lowers the rate from 7% to something around 3.92%.

You might have a “step up” in basis if you inherited property. For example, you might have inherited your mother’s home, which she bought in 1965. Your cost basis is typically the value on the day the decedent passed. Imagine that your mother paid $20,000 for the house in 1965. After inheriting it, you sell it for $300,000. You do not pay taxes on the $280,000 profit because its value on the day she died was $295,000.

Capital gains can represent a surprise tax for many. Call our firm to review all the details.

Federal Capital Gains

There is also a federal capital gains tax which might apply to the real estate transaction. The rate will depend on how long you owned the property. If you owned it for more than a year, then you pay 0%, 15%, or 20%. If you owned it for less than a year, you might end up paying a maximum of 37%.

The good news is that you might not owe any federal capital gains taxes on real estate. If you used the home as your main residence for at least 2 years during the past 5 years, then you can exclude up to $250,000 in gains (or $500,000 if you are married and file jointly).

South Carolina Property Taxes

Property owners also must pay annual property taxes. In South Carolina, these taxes fund schools, libraries, and other local services. The tax is calculated based on the mill rate and the value of your property. The millage rate is set by the local government, which is also responsible for assessing the value of your property.

The good news is that South Carolina has one of the lowest property tax rates in the nation. Unfortunately, you will owe property taxes annually. Unlike transfer taxes, which you pay once, you are responsible for fully paying your property taxes each year, otherwise the county can put a lien on your property.

Buying or Selling Property? Call Surasky Law Firm

Our Aiken, SC law firm has decades of experience handling real estate transactions. We can review the real estate transfer tax, as well as other fees and taxes, to determine what you will owe at closing. We can also negotiate with the other side to pay or split the cost of your transfer tax. Contact us today to schedule a meeting. You deserve a seasoned lawyer’s assistance when navigating what is a complicated area of law.