What are real estate transfer taxes? Who has to pay them? Learn about real estate transfer taxes for the state of Ohio.
The average homeowner who purchases a $150,000 home will pay approximately $3,700 in closing costs. What are all of these fees and taxes?
Some of the fees go to the bank for their part in processing your loan application. Some of the money goes to the lawyer who looked over the legal documents regarding the purchase or sale of your property. Some of the fees are for the necessary appraisal of the property.
There may be a significant charge on the list that is called the real estate transfer fee, deed tax, mortgage registry tax or stamp tax. What is this fee? Is this something that every new homeowner has to pay?
The short answer is “yes.” In most states, someone has to pay a special tax to ensure that the ownership of the property is transferred from the seller to the buyer. This tax, which can be collected by the city, county, or state (or all three), is usually based on a percentage of the sale price of your home.
Ohio calls the tax a real property conveyance fee. In fact, the transfer tax is collected at the city, county, and state level in some cases.
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 also he or she will let you know what to expect during the closing process.
Ask your real estate agents what taxes and fees you will be paying during your closing.
Who Pays Transfer Taxes in Ohio: the Buyer or the Seller?
The seller is usually responsible for the document transfer tax in Ohio. While it is possible for the buyer to assume responsibility for the tax payment during the negotiation process, the seller should expect the tax payments to be deducted from their proceeds at closing.
How Much Are Transfer Taxes in Ohio?
The current rate for the Ohio real property conveyance fee is one mil ($1 per $1,000 of the value of the property sold or transferred.) In addition, counties in Ohio can also impose a permissive real property transfer tax of up to three additional mills. The most current information shows that 87 of 88 counties in Ohio collect this additional tax.
For a $150,000 home, the seller in Ohio will pay $150 for the state real property conveyance fee. The seller will also pay an additional $150, $300, or $450 on top of the state tax depending upon the county.
There are exemptions to paying this tax. The tax does not apply to property ownership transfers from one spouse to another or to children and their spouses. The tax also does not apply if the ownership is transferred to a non-profit agency.
Check the local tax code for the state of Ohio to learn about other exemptions to this tax.
Can You Deduct Transfer Taxes?
While property taxes may help relieve your tax bill at the end of the year, the state and county real property conveyance taxes are not tax deductible. The IRS does not consider transfer tax a “sales tax.”
If you are the seller, you can include the transfer tax in the “cost basis” of the property.
This is how it works:
Hopefully, when you sell a property, you will make money on the sale. You may be charged a capital gains tax on the amount of money that you made. The amount you spent on the transfer tax can be subtracted from your profit so that your capital gains tax bill can be reduced.
This reduction isn't even necessary if you owned the home for more than two years. If you lived in the house for two of the last five years, a married couple could exclude $500,000 of capital gains anyway.
Very few people like to read and think about taxes. Since most people go through a house closing only a few times in their lives, they don't find it necessary to memorize the details of the real property conveyance fees.
When learning about complicated issues like taxes and closing costs, sometimes it is easier to have a professional sit across the kitchen table from you to explain things. That's why you should reach out to a Clever Partner Agent in Ohio.
Whether you are buying or selling a home, 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.
One thing to remember, our agents sell for a 1.5% listing fee ($3,000 minimum). Rest assured that's one expense that won't be a surprise on closing day.