Guide to Transfer Tax: How to Calculate Transfer Tax

Transfer tax is a tax that is imposed on the transfer of real property from one individual to another as a means of gathering tax revenue. Transfer taxes, also called documentary transfer taxes, are determined by the states, counties, cities, or municipalities in which the property is located. A property’s transfer tax rate is based on the sale price of the property and its classification, whether it is residential, industrial, or commercial property.

The transferring property owner is usually responsible for paying the transfer tax. Transfer taxes can also be levied on property transferred by inheritance rather than the sale of property. This is sometimes referred to as a death tax. Eleven states in the United States do not have a transfer tax, but the rest of the states impose transfer taxes of varying rates.

The property seller is usually responsible for the real estate transfer tax. This amount is based on the sales price of a piece of property that is being transferred via a legal property deed. The seller can arrange for the buyer to pay the property tax as part of the closing costs of the sale, or for a reduced purchase price on the property. In some states, the buyer is required to pay the transfer tax if the seller meets the requirements for an exemption.

Every state has a different rate of transfer tax for the sale of real property, Eleven states do not impose a transfer tax on the sale of real property. These include Alaska, Idaho, Indiana, Louisiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Texas, Utah, and Wyoming. Otherwise,

1. 1. Look up your state rate. Your state will have a set, unique transfer tax rate unless you live in one of the eleven states that don’t impose transfer taxes on the sale of real estate. Depending on where you live, you may be subject to an additional transfer tax rate—like a city transfer tax or county transfer tax—that is added to the transfer tax rate for your state.
2. 2. Determine the sale value of the property. You will need to apply the transfer tax to the property value of the asset you are exchanging. Determine the sales price of your property to calculate your specific amount owed in property tax.
3. 3. Calculate the transfer tax. Use your state’s property tax to calculate the proper percentage of your property’s value.

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