Whenever you buy or sell property, you transfer the deed to another person. In most U.S. states, that transfer is taxed, and it’s considered part of the fees of buying a home.
In Iowa, this tax is due to the county and is used by a variety of entities. 17.25% is retained by the county, 74.47% goes to the state’s general fund, 4.14% goes to the Housing Trust Fund, and 4.14% goes to the Shelter Assistance Fund.
To make sure that the transfer tax and all other fees are assessed and paid correctly, it’s essential that both buyers and sellers work with a professional agent. They have the expertise to make sure nothing is missed.
Who Pays Transfer Taxes in Iowa: the Buyer or the Seller?
In Iowa, the seller is responsible for the real estate transfer tax. However, the transfer tax is due when the deed is recorded, and the buyer is responsible for that process (and cost.)
To reconcile this, at the closing table the buyer takes the amount of the transfer tax as a credit against the sales price. Then, the buyer pays the transfer tax when the deed is recorded, along with the recording fees.
The seller’s costs at closing also include real estate commissions, prorated property taxes, and abstract and document fees. The property taxes are also taken as a credit by the buyer against the sales price, so the buyer is responsible for actual payment for that cost as well.
Buyers, of course, need to expect to pay their down payment, lender fees, escrow, appraisal, home insurance premiums, and any attorney fees they’ve incurred.
How Much Are Transfer Taxes in Iowa?
Iowa assesses transfer taxes at $0.80 per $500, with the first $500 exempt.
As an example, the median home value in Iowa is $154,727, although that can vary widely depending on the specific city or town you’re looking at. However, at that price, the transfer taxes would be $246.76.
Compared to many states where percentages are assessed, the transfer tax in Iowa is fairly reasonable!
Can You Deduct Transfer Taxes
As a seller, you may wonder if you can deduct transfer taxes from your federal taxes as an expense. Unfortunately, you cannot, but you can use them to lower your capital gains obligations.
When you sell a home that you’ve lived in for at least two of the last five years, the first $250,000 ($500,000 if you’re married filing jointly) of your capital gain is exempt from capital gains taxes. Any amount over that is taxed. However, the sale price is not your capital gain.
Instead, you start with the sale price and deduct all of the expenses you paid to sell the home — including commissions, fees, and transfer taxes. Then you deduct the amount you paid for the home along with any improvements you’ve made over the years.
What’s left is your profit. If it’s under $250,000 (or $500,000,) you won’t pay taxes on the sale unless you’ve used the exclusion in the past two years or fall under other exceptions.
As we noted above, the transfer tax is deducted from the sale price but is physically paid by the buyer when the deed is recorded. You’ll see the amount of transfer taxes in the paperwork on the HUD-1 settlement form.
As with all other aspects of a home sale and the associated fees, transfer taxes are negotiable. One of the reasons it’s so important to work with an experienced real estate agent is that they are highly skilled in negotiation and can help you get a deal that works best for you.
Property taxes are due September 1st and March 1st in Iowa, and the seller gives a credit to the buyer for property taxes to date at the closing of the sale. If any capital gains taxes are due, they need to be paid after taxes for the sales year are filed.
You may think that working with a real estate agent is an unnecessary expense, but that’s far from the case. If you’re a buyer, your agent will help you find the right home at the right time and negotiate the best price. They’ll walk you through the process and make sure you protect your rights.
As a seller, your agent will help you price your property, market it, screen buyers, and arrange showings. They’ll also help you negotiate the right sales price, walk you through the process of handling offers, and make sure all the legal paperwork is in place.
You can’t afford to go it alone. Even better, when you work with a Clever Partner Agent, you can save money on commissions. If you’re interested in working with a professional full-service agent, we can help. Contact us and we’ll answer all of your questions and set you up with a no-obligation consultation with an agent in your area.