Real Estate Transfer Tax Reduction
Reduce Your Real Estate Transfer Tax – Prior to Closing
Are you planning to purchase or sell commercial real estate? Did you know that real estate transfer taxes could add a significant amount to your closing costs? A Transfer Tax Reduction Study is a valuable, often overlooked, pre-closing real estate tax strategy that can reduce the real estate transfer tax liability.
When real properties are purchased or sold, many states and local governments impose a Real Estate Transfer Tax. These taxes are also referred to as property transfer tax, real estate conveyance tax, mortgage recording tax, recording fee, deed tax, stamp tax, and other such terms. Often based on the purchase price of the property, real estate transfer taxes can add a significant amount to the property’s overall cost.
Why Perform a Transfer Tax Study Prior to Closing?
Real estate transfer taxes are just that – taxes imposed at closing for transfer of the real estate title. The key word here is “real estate” and NOT “personal property,” which is exempt from transfer taxes. Many transactions are improperly reported at the full property value, including both real and personal property.
The market value of personal property to be transferred under the transaction is seldom identified and claimed as “exempt” from the transfer tax. The result is often a significant overpayment of the transfer tax. This is especially common in the hospitality industry where furniture, fixtures and equipment are typically included in the transaction.
Overpaid transfer taxes cannot be refunded once they are paid. If you want to save money, you must have a tax reduction study performed prior to closing.
Paragon’s Transfer Tax Reduction Study includes a fair market value appraisal of the real and personal property. You get an accurate amount of the transfer taxes that the buyer and/or seller may have to pay.
Transfer Tax Savings Vary Depending on Location
Transfer tax rates vary greatly between states, counties and municipalities. For example, no taxes are imposed in about a dozen states, whereas total taxes in other states are significant. In San Francisco, the city/county transfer tax is a staggering 6% of the transaction price, and that’s on top of the state’s .11%.
In the Chicago, Illinois example below, the total rate is 1.2% for combined state, county and city taxes, with the Buyer paying nearly two-thirds of the total tax. Based on an estimated 25% personal property, the combined transfer tax savings for the buyer and seller is $600,000!
|EXAMPLE: Chicago, Illinois||Seller||Buyer|
|Proposed Transaction Value||$200,000,000||$200,000,000|
|State Transfer Tax – .10%||200,000||—|
|County Transfer Tax – .05%||100,000||—|
|City Transfer Tax, Seller – .30%||600,000||—|
|City Transfer Tax, Buyer – .75%||—||1,500,000|
|Total Transfer Tax||$900,000||$1,500,000|
|Estimated Personal Property – 25%|
|Total Transfer Tax Savings||$225,000||
Contact us to see how much you could potentially save on your future planned real estate transactions – before you close!