What Is a Documentary Transfer Tax?

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DEFINITION

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.

Definition and Example of a Documentary Transfer Tax

A documentary transfer tax is imposed on real estate transactions where ownership changes. It is typically charged as a percentage of the real estate sales price.

  • Alternate names: Documentary stamp tax, real estate transfer tax
  • Acronym: DTT

For example, the California Documentary Transfer Tax Act allows a tax of $0.55 per $500 of property value or consideration paid. Therefore, the documentary transfer tax would be $330 if a buyer in Sacramento were to purchase 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. Therefore, a buyer would pay $825 to the city of Sacramento and the $330 transfer tax fee to the state of California, bringing the total tax bill up to $1,155.

How a Documentary Transfer Tax Works

When a property is sold, the city, county, or state tax office records the transaction and stamps the amount paid on the deed. 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 was sold for, because the fee is often based on the real estate sales price.

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, making it difficult to figure out who's paying it.

Exceptions to this tax in some areas 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.

Do I Need to Pay a Documentary Transfer Tax?

The county transfer tax is typically paid by the seller, while the city transfer tax tends to be divided equally between the seller and the buyer. However, the seller or the buyer of the property can be liable for the documentary transfer tax. Each jurisdiction has its own local requirement for determining which party pays it.

Ask a real estate agent who customarily covers the cost of these taxes in your location to find out who's responsible for paying them.

The tax is considered a buyer's benefit because it increases the property's cost basis. This adjustment can reduce any capital gains taxes after selling the home, if there are any.

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, making it difficult to figure out who is paying.

Of the 50 states in the U.S., there are 13 that do not charge any documentary transfer taxes.

States Without Documentary Transfer Taxes
Alaska Montana 
Arizona  New Mexico 
Idaho  North Dakota 
Indiana  Texas 
Louisiana   Utah 
Mississippi   Wyoming
Missouri

Some states that charge transfer taxes have much more complicated transfer tax laws than others. For example, Alabama charges $0.15 per $100, while Delaware charges 3% when the property's value is at least $100. Counties and municipalities in Delaware can levy up to 1.5%, which reduces the state's tax to 2.5%. First-time homebuyers in Delaware also pay 0.5% on the first $400,000 of value, and the county where the property is purchased may waive the tax.

Key Takeaways

  • 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 $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.

Article Sources

  1. California Legislative Information. "Revenue and Taxation Code—RTC Division 2. Other Taxes [6001—61050] Part 6.7. Documentary Transfer Tax Act [11901—11935]."

  2. City of Sacramento. "Real Property Transfer Tax."

  3. City and County of San Francisco. "Transfer Tax."

  4. Lincoln Institute of Land Policy. "Real Estate Transfer Charges." Choose Select All States, Choose latest year, click apply.

  5. Lincoln Institute of Land Policy. "Real Estate Conveyance Tax for State, Municipality, Alabama."

  6. Lincoln Institute for Land Policy. "Realty Transfer Tax for State, County, Municipality, Delaware."