Transfer taxes are something to consider with every real estate transaction. Read on for what you need to know about Delaware transfer taxes.
If you're buying or selling a house, one of the largest costs (after the down payment) you can expect during closing is your state's real estate transfer tax. Transfer taxes can vary based on your region, state, and county. Here's everything property owners, buyers, and sellers need to know about Delaware real estate transfer tax.
What Are Real Estate Transfer Taxes?
Real estate transfer taxes are charged when property changes hands. It's a percentage of either the sale value or assessed value of your property, depending on what state you're in. Thirty-five states and the District of Columbia have transfer taxes.
Real estate transfer taxes are also known as real estate conveyance taxes, mortgage transfer taxes, documentary stamp taxes, and property transfer taxes. Transfer taxes are used for filing purposes and help fund land developments and HUD properties and programs.
Transfer taxes can vary on a regional, state, and local level, so it's important for buyers and sellers to work with an experienced real estate agent to ensure they completely understand the transfer tax process before buying or selling property.
If you're buying property, selling property, or have inherited property, transfer taxes in your state and county are something you need to be familiar with. Speak to a Clever Partner Agent about other tax savings for buyers and sellers. They will also be able to guide you to a host of government programs and grants that can cut down on your closing costs.
How Much Are Transfer Taxes in Delaware - and Who Pays?
Transfer taxes in Delaware are 4% of the purchase price of the property, with 2.5% going to the state and 1.5% going to the county. Common practice is for the buyer and seller to split the transfer tax costs evenly, with both the buyer and seller paying 2%.
First-time buyers in Delaware typically qualify for state-level exemptions. For example, Delaware first-time buyers automatically qualify for a state transfer tax exemption on a purchase price up to $400,000. First-time buyers purchasing property worth more than $400,000 will pay 1.25% of the amount above $400,000.
In this case, the first-time buyer would still be responsible for paying a 0.75% transfer tax to the county, while the seller would still be responsible for their full 2% share (1.25% to the state and 0.75% to the country).
To provide a more concrete example, a median home in Delaware is worth $274,067. The seller and buyer of a $274,067 home would, unless exempt, pay $5,481 in transfer taxes. If the buyer is exempt from state tax, they would instead pay $2056, while the seller will still be responsible for their $5,481 share.
Can You Deduct Transfer Taxes?
Yes and no.
Unfortunately, transfer taxes are not tax-deductible for the buyer or the seller, unless the property is an investment property. However, property owners can include transfer taxes in the “cost basis” of the property (the amount you paid to acquire it).
In this situation, sellers can deduct the tax from the effective sale price of the home when computing the capital gain or loss. Raising the cost basis of the home decreases the capital gain on the sale. This will help reduce the seller's tax burden.
There is also an exemption to the no deduction rule - if the property being taxed is a rental home or real estate investment, transfer taxes can be deducted as a work expense.
In addition to being familiar with the Delaware state property transfer tax specifics, buyers and sellers need to understand the overall state and local taxation scheme where their property is located.
A Clever Partner Agent can help you navigate all the fees and taxes you will have to pay when you buy or sell property. They can also let you know about negotiating who will pay the tax, the buyer or seller.
All Partner Agents are up-to-date on the current trends of the real estate market and are also familiar with all of the legal and tax implications of home sales. They are top negotiators from major companies like Keller Williams, Century 21, and RE/MAX. They are also full service, so you won't sacrifice any benefits while saving money.