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.
There are various taxes and fees associated with the buying and selling of a home. A lot of buyers and sellers are not aware of them when they choose to do anything in 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 $200,000 can pay anywhere from 2% to 5% of the sale price in closing costs. This means anywhere from $4,000 to $10,000 just in closing costs.
As you can see, these costs and fees can add up fairly quickly and 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 a lot of buyers and sellers aren’t aware of 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 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 North Carolina: the Buyer or the Seller?
In North Carolina, it’s very typical that the seller will pay the transfer tax during the sale of a property. Transfer taxes can be imposed by the city, county, or state (or all three). They are most commonly used for funding public services, just as most taxes are. However, 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 North Carolina?
When ownership in North Carolina real estate is transferred, an excise tax of $1 per $500 is levied on the value of the property. For example, a $600 transfer tax would be imposed on the sale of a $300,000 home. Transfer taxes in North Carolina are typically paid by the seller. Seven counties in North Carolina are authorized to impose an additional land transfer tax of up to 1% of the sale price. Only seven counties in North Carolina levies a local excise tax on the transfer of real estate. They are Perquimans, Camden, Chowan, Currituck, Dare, Pasquotank, and Washington County.
However, 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?
We are all typically looking for ways to make tax deductions. 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. This is because the IRS does not consider transfer taxes as a “sales tax.”
However, as a seller, you can include the transfer tax on the cost basis of your property. The way this works is when you sell your house, the goal is to walk away with a profit. This profit is going to be taxed by a capital gains tax. 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.
Learning about taxes and fees isn’t normally the most intriguing topic for people to want 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 North Carolina 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 sellinga 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.