Deeds serve to transfer the ownership of a property between the seller and buyer. Many states charge some type of real property transfer tax that must be paid when the deed is filed on record. In certain situations, the transfer may be exempt from taxes. Each state has specific guidelines concerning such exemptions.
Transfer Tax
If the state or county the property is located in assesses a transfer tax, it must be paid or an exemption must be cited. Generally, the transfer tax is based on the sales price paid for the property. For example, a state may charge $1 per every $1,000 of the consideration price listed on the deed. The county recorder of deeds or clerk is responsible for collecting the tax at the time the deed is presented for recordation.
Common Exemptions
Each state and county has the right to determine what types of transfers are exempt from paying transfer taxes;, however, many common exemptions exist in several states. Most transfers between a husband and wife are exempt. Sometimes parent-child transfers are also exempt. Transfers to or from the U.S. or state government are usually exempt. Additionally, many nonprofit organizations are exempt from paying transfer taxes when purchasing or selling property. Other exemptions, such as foreclosure or inheritance, also exist in many states.
Forms
In addition to transfer taxes, some states also require a form or affidavit to be submitted with the deed. Many times, the form contains an area in which to calculate the tax owed on the transfer. If an exemption is being claimed, it can be disclosed on the form. Often a list of acceptable exemptions is included on the form. This step is important, if applicable, because failure to properly complete a form can result in the deed being rejected for recording.
Bankruptcy
In some bankruptcy proceedings, homeowners may be advised to file for a homestead deed exemption. This technicality can offer protection to the property's value if it is sold under Chapter 7 proceedings. Under Chapter 13 laws, homestead exemptions can offer protection from debt collectors against personal property. The laws for homestead exemptions regarding bankruptcy also vary by state. A bankruptcy attorney should be consulted for information about state-specific laws.
