Transfer Taxes

Transfer taxes are charges imposed by a government authority on the transfer of real property ownership. When a home changes hands, one or more government entities may impose a tax based on the sale price or another measure of the transaction's value.

How transfer taxes work varies significantly by location. Some states impose them; others do not. Where they exist, rates, calculation methods, and rules about who is responsible for paying them differ by jurisdiction. In some places, the seller is responsible. In others, the buyer pays. In still others, responsibility may be negotiated as part of the contract or split between the parties. Local custom and the purchase contract govern the allocation in many cases.

Because Bri works with buyers and sellers in both Alabama and Tennessee, it would be misleading to present any one state's transfer tax structure as universal. The specific transfer taxes applicable to your transaction, and how they will be allocated, are identified by your title company or closing attorney based on the property's location and the terms of the contract.

Transfer taxes appear as a line item on the Closing Disclosure and the seller's settlement statement. Because they are set by government authority, they are generally not negotiable in amount, though who pays them may be addressed in the purchase contract.

Transfer taxes are distinct from recording fees, which are the government charges for filing the deed and mortgage in the public record. Both may appear as separate line items in the closing documents.

Transfer taxes can represent a meaningful portion of closing costs for either the buyer or seller, depending on the jurisdiction. Knowing they exist and that they will appear in the closing documents helps both parties plan for the full cost of the transaction rather than only the purchase price and service-related fees.

For sellers, transfer taxes allocated to the seller reduce net proceeds. For buyers, transfer taxes allocated to the buyer increase cash to close. Either way, they are part of the financial picture worth understanding before the transaction closes.

A seller prepares to close on the sale of her home. During the listing conversation, her agent reviews a seller's net sheet that includes a transfer tax line item, calculated as a percentage of the sale price based on the applicable jurisdiction's rate. The seller understood this cost before signing the listing agreement and was not surprised to see it on the settlement statement at closing.

"Transfer taxes are the same everywhere."

They are not. Transfer tax rates, structures, and rules about who pays them vary significantly by state, county, and municipality. Two transactions in different locations, or even different counties within the same state, can have very different transfer tax obligations. Do not assume that what you paid or received in a previous transaction in another state or county will apply to your current situation. Your title company or closing attorney is the right source for what applies to your specific location and transaction.