Kentucky Real Estate Transfer Taxes: An In-Depth Guide

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By Jamie Ayers Updated December 21, 2021


When you are looking to buy or sell a home, it's important to understand all the financial implications that come with it. One of the more common fees that people face is transfer taxes. Here is an in-depth guide on everything regarding transfer taxes.

Kentucky Real Estate Transfer Taxes: An In-Depth Guide|Kentucky Real Estate Transfer Taxes: An In-Depth Guide

There are many taxes, fees, and costs that are associated with buying and selling a home. A lot of buyers and sellers are not aware of them when they choose to make any decisions regarding real estate. Some of the more common costs are closing costs, transfer taxes, property taxes, and real estate commission. The average homeowner who purchases a home for $300,000 can pay anywhere from 2% to 5% of the sale price in closing costs. This means anywhere from $6,000 to $15,000 just in closing costs

As you can see, these costs can add up fairly quickly and can come as a surprise when you walk away from selling or buying a home and either don't make a profit or spend more than you budgeted for. It's important to do research and account for these costs to make sure you are financially prepared to deal with real estate transactions.

One of the costs that some people are unfamiliar with is the transfer tax. A transfer tax is any kind of tax that can be levied on the transfer of ownership of a property from one person to another.

Since this tax varies from state to state, it is essential that both buyers and sellers work with an experienced local real estate agent. Working with an agent during the home buying and home selling process is extremely helpful. Not only will an agent negotiate on your behalf, but he or she will let you know what to expect during the closing process.

Who Pays Transfer Taxes in Kentucky: the Buyer or the Seller?

In Kentucky, the seller is the person in charge of paying the real estate transfer tax. Transfer taxes can be imposed by the city, county, or state (or all three). They are most commonly used for funding public services.

There are some circumstances where the buyer might pay the transfer tax. If the buyer and seller are up for negotiating terms during the selling and buying process, you can ask that the buyer pays a portion or all of the transfer tax.

How Much Are Transfer Taxes in Kentucky?

When ownership in Kentucky is transferred, an excise tax of $.50 for each $500 of value or fraction thereof, is levied on the value of the property. For example, the sale of a $200,000 home would require a $200 transfer tax to be paid. Keep in mind, a deed cannot be recorded unless the real estate transfer tax has been collected. However, if the deed is a gift or indicates nominal consideration, the tax is paid on the estimated price the property would bring in an open market. The tax is also paid in the county in which the house is being bought or sold.

There are circumstances where there is no transfer tax needed. Some of these are deeds of gift, foreclosure deeds, deeds from local, state, or federal government, and certain leases with a term of fewer than 10 years.

Can You Deduct Transfer Taxes?

It's understandable that we want to look for ways to make tax deductions. As hard working people, we want to keep as much of our income as possible. While there are many things homeowners can do to maximize their tax deductions, such as utilizing property taxes, transfer taxes is not one of them. Transfer taxes are needed to legally impose a transfer of real estate. In some situations, they can be deducted as a work expense if the property is being used as a rental home or real estate investment.

Transfer taxes become part of the cost basis of the property, which is used to calculate the final gain on sale if the property is sold. The amount you spent on the transfer tax can be taken from your profit so that your capital gains tax bill can be reduced.

The good news is that you won't even need to make this reduction if you owned the home for more than two years. A married couple who lived in the house for two of the last five years could exclude $500,000 of capital gains.

Other Considerations

Learning all about taxes and fees isn't typically the first item on someone's list of things to learn about. Especially since many people will only go through the closing process on a home a minimal amount of times in their life. This is obviously why most buyers and sellers don't have all the closing costs and transfer taxes memorized.

When it's time for you to learn about taxes and closing costs, it's easier to speak to a professional face to face and take the time to explain it. This is where Clever Partner Agents in Kentucky come into the equation. They are educated and trained real estate professionals whose job is to assist you during the buying and selling process of your home.

Whether you are buying or selling a home for the first time or you have the experience, your real estate agent will talk you through the process and make sure you understand all the different fees and taxes that you will be charged at closing.

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