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- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
About Transfer Tax In Real Estate
Purchasing a home is one of the most important and expensive transactions for any individual.
There are many costs involved in a property purchase like closing costs, attorney fees, appraisal fees, title insurance, etc.
One more cost that is included in the transaction is a real estate transfer tax. In this post, we will understand what are transfer taxes in detail.
What Is A Transfer Tax?
When it comes to property transfer tax every state has different regulations. Most people ask who pays the transfer tax. In most cases, the property seller is responsible to pay for this tax.
This type of tax is also called a deed transfer tax. When the real estate is being sold from the seller to the buyer this tax is charged by the local authority or the state as a one-time charge.
The amount of tax is based on the cost of the property. Higher the sales price higher would be the transfer tax for the property to be paid by the seller.
Usually, the tax is levied by the government jurisdictional agencies, however, it could be the state, country, or city but mostly the local government that imposes this tax.
If you are buying or selling a property in the state of Texas, you don’t have to worry about paying them as Texas is one of the few states which do not levy this tax.
Other states that do not impose this tax are New Mexico, Wyoming, Oregon, Montana, Missouri, Louisiana, Mississippi, Arizona, Idaho, Indiana, Alaska, North Dakota, and Utah.
What Are Other Types Of Transfer Taxes?
I - Inheritance Transfer Tax:
This type of tax is also known as the death tax. In this type, the tax is levied on the transfer of real estate property by inheritance.
This happens when the property ownership is transferred from the current owner after he passes away to his or her heirs.
This tax is subject to an exemption within the limit set by the federal government. The exclusion amount for the taxpayers inheriting the property in 2022 is 12.06 million.
II - Gift Tax:
The gift tax is imposed on the living person gifting the money or property to his or her immediate family.
The gift tax could be charged to the person who is giving the gift from anywhere between eighteen to forty percent for amounts over sixteen thousand dollars in 2022
III - Generation-Skipping Tax:
In this type of tax, the person receiving the gift should be thirty-seven and a half years younger than the person giving the gift.
This means that the gift usually is for grandchildren or two or more generations below the grantor, however, does not have to be for an immediate family member.
Till the year 1976, people were able to pass a good amount of assets to the next generation without paying any estate tax.
After 1976 the law says that if you are passing any asset above the federal exclusion amount you have to pay the estate tax.
Conclusion
Whether you are selling your house for the first time or you are a seasoned real estate investor, you need to have complete knowledge about the transfer tax in your state so that you are not getting any surprises towards the end of the transaction.
Please ensure that you check the state regulation to know how much tax could be imposed if not any.
This will help you be prepared for the additional cost that you may have to incur during your property sale transaction.
Speak to your trusted real estate agent to understand how the tax works in your state or county to make an informed decision.
