People often use quitclaim deeds for informal real estate transactions rather than for the sale of property for fair market value. This means that many -- but not all -- transactions involving quitclaim deeds are exempt from transfer tax, a seller-paid tax some states charge on the sales price of real estate.
Transfer tax is a state tax levied on the sale of real estate. The tax is calculated on the total sales price of the property, with the seller generally paying transfer tax at the time of closing.
Not all real estate transactions are subject to transfer tax. Some common transactions do not involve an exchange of money for property, or they are otherwise not taxable. People often use quitclaim deeds for the types of transactions that are exempt from transfer tax.
A quitclaim deed allows a property owner to transfer all or part of his property to another person without making any guarantees as to the legal title to the property. When you receive property with a quitclaim deed, you are not given any assurances that the property is free of liens or other owners, or that the person who signed the deed has any ownership in the property himself.
Quitclaim deeds are often used to add family members to or remove them from property ownership, to correct a mistake made on a previous deed, or to release liens or other claims against real estate.
Using a quitclaim deed does not automatically exempt a transaction from transfer tax. Instead, the state taxing authority looks at the type of transaction and whether or not consideration -- money or another valuable item -- was exchanged for the deed.
Quitclaim deeds used to gift property are generally exempt from transfer tax as are quitclaim deeds between family members where little consideration was exchanged. Another common exemption is a quitclaim deed that serves to release property held as collateral for a loan or to release another lien against the property.
Sometimes two or more property owners wish to change the manner in which they hold title to real estate. For example, owners holding property as tenants in common might quitclaim their land from themselves to themselves as joint tenants with rights of survivorship. This type of transfer is also transfer-tax exempt.
Quitclaiming property for less than fair market value might mean the transaction is transfer-tax exempt; however, there may be other issues, such as gift tax, to consider. Consult an attorney to make sure you understand all the implications before signing a deed.
- The Free Dictionary: Transfer Tax
- Quitclaim Deed: Quit Claim Deed Forms
- Quitclaim Deed: Real Property Transfer Tax Exemptions
- Justia.com: Official Code of Georgia Annotated 48-6-2 (2010)
- Internal Revenue Service: Gift Tax
- HG.org. "Contracts 101—Warranty vs Quitclaim Deeds." Accessed Aug. 12, 2020.
- Realtor.com. "When Do You Need to Get a Quitclaim Deed?' Accessed Aug. 12, 2020.
- DivorceNet. "Interspousal Transfers Versus Quit Claim Deeds." Accessed Aug. 12, 2020.
- California State Board of Equalization. "Property Ownership and Deed Recording," Page 7. Accessed Aug. 13, 2020.
Marie Wolf became a freelance writer after practicing law for eight years. She began her professional writing career as a ghostwriter, penning books, blogs and newspaper articles for attorneys and business owners. Wolf received her Doctor of Jurisprudence from the University of Georgia School of Law.