Checking Property Transfer Taxes Before Making An Offer
Each state (and county for that matter) levies a tax on the transfer of real estate between owners. These taxes and recordation fees can be quite considerable, especially for properties in the higher price ranges. Homes in Washington D.C., for example, pay a tax of 1.1% if they are settled at $399,999 or less. However, for a dollar more, that tax climbs to 1.45%.
You may wonder what difference 0.34% makes. A home at $399,999 pays $4400 in taxes while a home at $400,000 pays $5800 – that’s $1400 more in tax for only a dollar extra in the home price. It may answer why so many homes are priced in that $399,999 price bracket, especially since this tax is levied on both the buyer and seller. Washington D.C. also charges the buyer a further fee for recording the transfer of property ownership.
The surrounding states are a little better in that these taxes are generally only levied against the buyer. In Virginia, you will pay a deed tax of around $3.33 per $1000 on the sales price and a trust tax of $3.33 per $1000 for the value borrowed while recording fees are only around the $100 irrespective of house price. If you are borrowing to buy your home, the higher your deposit, the lower your loan, and the lower the taxes on that component (and the lower your repayments as well).
For homes in Maryland, you will have to pay both state and country transfer taxes along with a state recordation fee. Maryland, along with many other states, waives some or all of the tax for first home buyers and there may be other taxes or fees that may be applied. You will also need to take into account annual property taxes that are generally levies and due every six months.
When in the market to buy real estate, you need to assess what taxes you may be liable for, who pays them, and how much. It is also important to verify when payment of these taxes and fees are due – in most cases, it is when the transfer documents are submitted. Your real estate agent should be able to advise you on any tax matters involved with the sale of your home. However, do bare in mind that real estate agents are not tax agents or tax experts – you should check with each state and country to verify their taxes.
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