What is Documentary Transfer Tax

documentary transfer tax
Government agencies collect a transfer tax at the time of sale. © Big Stock Photo

Definition: A documentary transfer tax is a tax collected by the county or the city every time a real property exchanges hands or is sold through the public records. The documentary transfer tax is generally a fee based on a percentage of the sales price. In California, counties charge 55 cents per 500 dollars of sales price of transfer tax. This fee is sometimes equated to $1.10 per thousand, but it is really 55 cents per $500, or fraction thereof.

The seller or the buyer can pay the documentary transfer tax, but each county typically has its own local custom as to which party pays for this tax. You should ask your real estate agent who pays the documentary transfer tax in your area. It could be you!

The documentary transfer tax is also a way to determine the sales price of a property, since each deed has the tax "stamped" on the face of the deed. Absent any other information, generally this information for computing the sales price is deemed reliable, providing the consideration paid did not involve a loan assumption. There is no documentary transfer tax in California on the amount of an existing loan.

For example, if a buyer purchases a home in Sacramento valued at $300,000, and finances that purchase through an 80% loan-to-value first mortgage of $240,000 at 5% interest, amortized over 30 years, how much documentary transfer tax would the seller pay if the train left Newark at 11 AM?

OK, just kidding. Nothing else in this example matters except for the sales price. The documentary transfer tax for California would be $330.

You can read about the Documentary Transfer Tax Revenue and Taxation Code from the California State Board of Equalization.

An exception would be a California interspousal transfer deed or certain types of a quitclaim deed in which the consideration is $1.00 or less.

There is no documentary transfer tax collected on the filing of those particular deeds in the public records.

On top of paying the documentary transfer tax, the parties to a real estate transaction in Sacramento, for example, pay a city transfer tax. The city transfer tax is more significant. Using the previous example of a $300,000 sale, the tax would be $825.

Sometimes this tax is called by other names in other states such as a documentary stamp tax. It is often embedded in the recorded deed. Sometimes cities, in addition to counties, charge a separate transfer tax. Such taxes are used to pay for certain things that benefit everyone in the county, not just homeowners.

The National Conference of State Legislators has published a list of all the states that charge some sort of transfer tax upon the resale of real property. Some states charge a tax based on the amount of the mortgage as well. You can see the list online of national transfer tax assessments.

Even if the buyer does not pay any of the documentary transfer tax, it is a tax imposed on the sale for the buyer's benefit, which is why under TRID guidelines, you may find the fee on a closing disclosure as both a credit and a debit.

This confuses the heck out of most people, even real estate agents. It might also be bundled with other charges, making it pretty much impossible to figure out who is paying which fee. That's how simple the government had made understanding TRID paperwork.

There are also movements I hear about from time to time to eliminate documentary transfer tax from the face of grant deeds, sought by wealthy sellers who do not wish the sales price to be public knowledge.

At the time of writing, Elizabeth Weintraub, CalBRE #00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.

 

Examples: In Sacramento, the county charges a Documentary Transfer Tax of 55 cents per $500 of consideration, and the city of Sacramento charges its own transfer tax of .275% of 1% of the sales price. Typically the seller pays for the county transfer tax and the seller and buyer split the city transfer tax.