What Is a Documentary Transfer Tax?
Definition and Examples of the Documentary Transfer Tax
A documentary transfer tax is collected when real property changes hands or is sold through the public records. Counties, cities, or municipalities can assess this tax on real estate transactions within their jurisdictions.
The tax is also known as a documentary stamp tax or a real estate transfer tax, and the fee varies from state to state.
What Is a Documentary Transfer Tax?
Documentary transfer taxes are typically charged as a percentage of the real estate sales price. For example, the California Documentary Transfer Tax Act allows a tax of $0.55 per $500 of property value or consideration paid. The documentary transfer tax would therefore be $330 if a buyer in Sacramento purchased a home valued at $300,000: $1.10 for every $1,000 in value.
Cities can also assess fees for documentary stamps, and Sacramento charges $2.75 per $1,000 value of consideration. A buyer would have to pay $825 to the city of Sacramento in addition to the $330 transfer tax fee to the state of California. This brings the total tax bill up to $1,155.
- Alternate name: Documentary stamp tax
- Alternate name: Real estate transfer tax
How a Documentary Transfer Tax Works
Each publicly recorded deed has the tax stamped or embedded on its face, thus the name "documentary stamp tax." The tax can be a way to determine how much a property sold for because the fee is often based on the real estate sales price.
Wealthy sellers who don't want the sales price to become public knowledge have occasionally started movements to eliminate the documentary stamps from the face of grant deeds.
The document transfer tax that's used for computing the property's sales price is deemed reliable, provided that the consideration paid didn't involve a loan assumption.
Exceptions to this tax are interspousal transfer deeds, transfers between domestic partners, transfers between family members, transfers made as gifts or as part of an estate, and certain types of quitclaim deeds in which the consideration is $1 or less. A documentary transfer tax is not collected when filing the deeds as a public record in these situations.
Some locations, such as San Mateo County in California, only impose this tax when the fair market value of the property or the selling price, exceeds a certain limit, but the limit is negligible. It's just $100 in San Mateo County.
Do I Need to Pay a Documentary Transfer Tax?
The county transfer tax is typically paid by the seller, while the city transfer tax is divided equally between the seller and the buyer. Either the seller or the buyer of the property can be liable for the documentary transfer tax, however. Each jurisdiction typically has its own local requirement as to which party pays it.
Ask a real estate agent who customarily covers the cost of these taxes in your location to find out about who's responsible for paying there.
The tax is considered a buyer's benefit, even when the seller bears the cost. The documentary transfer tax must be disclosed under the Truth in Lending Act and Real Estate Settlement Procedures Act, collectively known as TRID, for this reason.
You might find the tax listed as both a credit and a debit on a closing statement. It can also be bundled with other charges, which can make it difficult to figure out who's paying the fee difficult.
The National Conference of State Legislators (NCSL) publishes a list of all the states that charge a transfer tax upon the sale of real property. As of October 2019, 38 states and the District of Columbia levied some version of this tax.
- A documentary transfer tax is imposed in many situations when real estate is sold and ownership of property is transferred.
- The tax is usually a percentage of the sales price based on increments of value, such as $0.55 per each $500 of value.
- Transfers of property between spouses and family members are normally exempt from this tax.
- States determine whether this tax must be paid by the buyer or by the seller.