Oregon is on a short list of states that have odd and unexpected laws surrounding transfer taxes. Read on to learn exactly what transfer taxes are, how Oregon diverges from other states around the nation, and most importantly, how you can save money on transfer taxes when buying or selling your home.
If you are in the midst of buying or selling a house, you're likely aware that you'll be paying taxes on your home. While there's the obvious property tax and capital gains tax, one tax that's easy to overlook and forget to budget for is the transfer tax.
Transfer tax is a tax imposed by the city, county, or state on any exchange of property — whenever you buy or sell a home.
Typically, the transfer tax is calculated from a percentage of the sales price of the home. And this percentage rate can drastically vary from state to state or even from city to city.
In some instances, if you're one county over, you'll be paying higher transfer tax rates than your neighbor.
This is why it's in your best interest to understand the process in its entirety and partner with an experienced and local real estate agent who can help you navigate the transfer taxes in your area no matter whether you're buying or selling a home.
Who Pays Transfer Taxes in Oregon: the Buyer or the Seller?
Unlike the majority of the country, Oregon holds a rather unique position when it comes to transfer taxes.
Oregon is one of the 13 states that don't require buyers or sellers to pay any transfer taxes when a piece of property exchanges hands — with one exception.
This one exception is for the residents of Washington County in Oregon who are unfortunately subject to transfer taxes.
The rest of the state, however, is exempt after an amendment passed back in November of 2012 called, The Oregon Real Estate Transfer Tax Amendment, Measure 79, also known as Initiative 5.
With this initiative, Oregon prohibited real estate transfer taxes throughout the state with one tiny clause excluding Washington County. In the past, transfer taxes have helped fund and transform the economy and community of Washington County, bringing in millions of dollars every year.
And it appears Washington County transfer taxes are going nowhere soon. In fact, the success of the Washington County taxes have prompted the Oregon Legislature to introduce bills restoring the transfer tax across the state. While the bills did not pass in 2020, the governor still plans to pursue the increases over the future, so tax rates may change at any time.
Regardless, if you are looking to buy or sell a home in Washington County, know that traditionally the transfer tax payment is split evenly between both buyer and seller.
Also keep in mind that once you close on a home in Washington County and the deed is recorded, you'll have only 15 days to pay the transfer tax before incurring a late penalty.
How Much Are Transfer Taxes in Oregon?
Again, if you live anywhere outside of Washington County in Oregon, congratulations, you don't have to pay a dime in transfer taxes.
But if you are within the boundaries of Washington County, you'll expect to pay $1 per every $1,000 on the purchase price of the home.
For example, if you want to purchase a home in the popular, burgeoning city of Portland, Oregon, which falls within the boundaries of Washington County, and pay the median selling price of $467,600, the total transfer tax will come to $467.60.
And remember, typically the buyer and seller split the transfer tax cost, so in actuality, you'll only be paying about $233.80.
Compared to the rest of Oregon who skip the cost altogether, this could seem like a lot, though compared to other state transfer tax rates, Washington County may actually seem relatively reasonable.
Can You Deduct Transfer Taxes?
No matter whether you're buying or selling a home, the entire process is inherently expensive. You'll always want to cut costs and avoid extra fees whenever possible.
However, lamentably, you typically cannot deduct transfer taxes as they are essentially the transaction fee in order to legally transfer the title of the home from seller to buyer.
Fortunately though, there is a bright side on how you can use transfer taxes to your benefit. As the seller, you can utilize transfer taxes to help offset capital gains tax during the home selling process.
In order to reduce the amount of taxation on any capital gain made from selling your home, you can add the transfer tax amount to your cost basis, which is the price amount you initially bought your home for.
In doing so, you'll ultimately reduce the total gain made on your home, thereby also reducing the amount that will be taxed, allowing you to save a few extra dollars throughout this entire process.
Before you put your home on the market or run to the bank to get a loan, ensure you fully understand all the costs that can crop up where you least expect it.
While in Oregon, transfer taxes are usually non-existent, if you do live in the Washington County area, know that transfer taxes are paid as part of the closing costs.
If you are on a tight budget and concerned about shelling out more money to pay for the transfer tax, you can consider modifying the asking price for your home. By lowering the asking price slightly, your transfer tax will also be reduced.
Another consideration to examine is using transfer tax as leverage in cost negotiations.
For instance, the seller could offer to pay the transfer tax in order to help close the deal faster or the buyer could offer to cover the cost in order for the seller to choose them over another buyer.
These options can certainly help in cost savings and in negotiations, though it's best not to go at it alone. Both buyers and sellers can benefit greatly and find even more savings when they partner with an experienced, local real estate agent.
A great agent will help you maneuver through the complicated process of buying or selling a home and make sure you're not missing out on any potential opportunities.