Guide to Real Estate Transfer Taxes
Homebuyers are often shocked at the number of fees involved in purchasing a home. Title insurance, real estate commissions, and attorneys’ fees add quite a bit to the purchase price. And there’s something called “real estate transfer taxes,” which can add even more to the purchase price.
Real estate transfer taxes go by different names in different states and cities. Each state sets its own transfer tax—if they have a real estate transfer tax at all. The bad news is that South Carolina is one of the states that currently levies transfer taxes on real estate.
Contact Surasky Law for more information about real estate transfer taxes, including ways to minimize the tax. Our law firm has helped with many real estate transactions and is here for you. Contact us today.
Real Estate Transfer Taxes at a Glance
A real estate transfer tax is a one-time tax which applies to the transfer of real estate. It is typically based on the price of the property and is represented as a percentage of the purchase price. The more a piece of real estate costs, the more taxes paid.
Any transaction involving property will likely fall under the transfer tax. In most places, the state and/or city is the one imposing the tax. They collect the tax to use for their expenditures.
Other Real Estate Taxes
Many different types of taxes apply to real estate. It’s easy to confuse them. For example, local governments collect property taxes on all real estate inside their boundaries. These taxes are paid annually by the property owner based on the mill rate and the assessed value of the property. Conversely, a transfer tax is a one-time tax.
Another tax that sometimes comes into play is the estate tax. This is a tax paid when a person dies, and their estate passes to their heirs. Estate taxes at the federal level only apply when the estate is valued at more than $13.61 million (for 2024).
Gift taxes are also sometimes involved in real estate transfers. This is a tax a person pays whenever they give a gift of property to someone else without any payment in return. The gift tax is paid to the IRS. The good news: there is an annual exclusion of $18,000 per person receiving a gift. That means you don’t have to pay any tax on a gift below this amount. There is also a lifetime gift tax exemption of $13.61 million, which adjusts each year.
Calculating Transfer Taxes
The transfer tax is set by state or local authorities, so South Carolina residents should focus on the rate set in our state. We call it the “deed stamps” rate, which is currently $1.85 for every $500 paid for the property.
Here is how it works. If the price of the real estate transfer is $200,000, then you would divide this amount by $500 and get 400. Then multiply 400 by $1.85, for a total of $740. That is the deed stamps tax paid on the transaction.
If the property is sold for $350,000, then you would divide this amount by $500 and get 700. Then you multiply 700 by 1.85 for a total of $1,295.
Other states charge a different rate. If this is your first time selling real estate in South Carolina, then you might be surprised that you are paying more for real estate transfer taxes than you did in other states.
For example, in Colorado, the transfer tax rate is much lower. The state only charges one penny for every $100 transferred. So a house selling for $750,000 would only generate $75 for a transfer tax. However, certain towns in Colorado are allowed to add their own transfer tax, and some do.
Paying the Transfer Tax
Who ultimately coughs up the money to pay the transfer tax on a transaction will depend on where you are buying a home. In Pennsylvania, for example, buyers and sellers usually split the transfer tax. However, in South Carolina, it’s standard for the seller to pay the transfer tax.
Transfer taxes are paid at closing, along with other fees, like appraisal fees. You should pay them to the closing attorney.
Buyers in a hot real estate market might negotiate with the seller to split the cost of the transfer tax. That would make you a desirable purchaser, and a seller might select your bid over a competitor. Agreeing to pay this fee certainly adds to the cost of the transaction, but it’s a way to stand out.
A seller who doesn’t want to pay the fees could try to get the buyer to pay some or all. Another option is to simply calculate how much you want to sell your home for, and then add the expected transfer tax on top.
What Are Taxes Used For?
In South Carolina, the tax is split between the state and local governments. For every $1.85 paid, the state gets $1.30, and the county gets $0.55.
It is up to the state and local governments to determine how to use the revenue. Typically, the money goes to schools, roads, and government employee salaries.
Can You Deduct Real Estate Transfer Taxes?
These taxes are not deductible against your income tax, so they won’t lower your tax bill at the end of the year.
What States Have No Real Estate Transfer Tax?
Not every state levies a transfer tax on real estate transactions. In fact, many states in the South, Mountains and West Coast do not have real estate transfer taxes:
South: Louisiana, Mississippi, Missouri, and Texas.
Mountains: Idaho, Montana, Utah, and Wyoming.
West: Alaska, New Mexico, and most counties in Oregon.
Other states without real estate transfer taxes include Indiana, Kansas, and North Dakota.
Speak with Surasky Law Today
Real estate transfer fees are an unwelcome surprise to some sellers. If you want legal advice, contact us. We have handled many real estate transactions and can provide the advice you need to understand your financial obligations.
