Real Estate Transfer and Mortgage Taxes

Real Estate Transfer Taxes

• States often impose transfer taxes on real estate conveyances.
• These taxes are typically paid when the deed is recorded.
• The tax is often paid by purchasing documentary stamps from the recorder's office.
• Stamps must be attached to deeds before recording.
• State transfer tax rates and methods of calculation vary.
• Taxes can be quoted as a percentage of the taxable consideration or a dollar rate per $100.00 of the selling price.
• If the number of hundreds in the selling price is not a whole number, it is rounded up to the next 100.
• For example, if a property sells for 350,120andthetaxrateis350,120 and the tax rate is 350,120andthetaxrateis0.55 per 100.00,thetaxstampscost100.00, the tax stamps cost 100.00,thetaxstampscost1,926.10.

Mortgage Taxes

• Some states impose taxes on instruments that contain promises to pay money, such as mortgages, notes, and contracts.
• These taxes are often paid by purchasing documentary stamps from the recording agency.
• Some states levy an additional tax on mortgages as intangible personal property.
• Mortgage taxes are typically paid by the buyer/borrower.

Property Taxes at Closing

• Property taxes are fees paid to state and local authorities to fund public services like schools, roads, and utilities.
• At closing, both the buyer and seller typically pay prorated shares of the annual property tax based on their ownership period.
• The seller pays for the portion of the year they owned the property, and the buyer pays for the remaining portion.
• Who pays property taxes at closing can be negotiated in the purchase contract.
• The buyer may offer to pay the seller's share as an incentive, or the seller may offer to cover the buyer's share as a bonus.

Calculating Property Taxes at Closing

• To calculate property taxes at closing, the total annual tax amount is divided into monthly and daily amounts.
• The seller's portion is calculated based on the number of months and days they owned the property since the beginning of the tax year.
• The buyer's portion is calculated based on the number of months and days they will own the property for the rest of the tax year.
• For example, if the annual property tax is 4,200andclosingisonJune27th,thesellerwouldpay4,200 and closing is on June 27th, the seller would pay 4,200andclosingisonJune27th,thesellerwouldpay2,053.42 and the buyer would pay $2,146.68.
• The lender or title company typically handles the calculation of prorated property taxes due at closing.
• Lenders usually provide an estimate of closing costs, including property taxes, when they submit a loan bid.

Homeowners Insurance at Closing

• Homeowners insurance is essential to protect your new home.
• It is typically purchased at closing and should be obtained before the transaction is finalized.
• Working with an insurance agent can help you build a customized policy to ensure proper coverage.

This quiz covers key concepts of real estate transfer taxes and mortgage taxes as imposed by various states. Participants will learn about the calculation methods, requirements for tax stamps, and the differences between transfer and mortgage taxes. It is essential for anyone involved in real estate transactions to understand these tax implications.