What Is a Transfer Tax?
Let me explain what a transfer tax really is. It's a charge that a state, county, or municipality imposes when ownership or title to property moves from one person or entity to another. You won't usually deduct this from your federal or state income taxes, but it can factor into the cost basis for calculating profits on sales of securities or investment properties. In some states, it's treated as an excise tax.
How Transfer Taxes Work
When you're dealing with real estate, a transfer tax gets levied by local authorities for the right to transfer property within their area. This tax hits the legal deed, certificate, or title shifting from seller to buyer, and it's calculated based on the property's value and type. Typically, the seller pays it, but sometimes you, as the buyer, might agree to cover it or be required to if the seller skips out or is exempt. Keep in mind, states like Alaska, Arizona, Idaho, Indiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Texas, Utah, and Wyoming don't impose this on real estate at all.
Transfer Taxes on Inheritances
Inheritance brings its own version of transfer taxes, often called death taxes by those who oppose them. This can include gift taxes, estate taxes, or generation-skipping taxes on the value of inherited property after someone's death. For most of you, high federal exemptions mean you won't face this—estates under $13.99 million in 2025 (or $13.61 million in 2024) are excluded. The federal estate tax covers the decedent's entire gross estate, including financial and real assets. There's also a gift tax on transfers made while alive, applying to the giver for amounts over $19,000 in 2025 or $18,000 in 2024, which you report to the IRS if exceeded.
The Generation-Skipping Transfer Tax
If you're thinking about skipping generations to avoid taxes, know there's a specific tax for that. The generation-skipping transfer tax adds an extra layer on property transfers that bypass one generation, like gifting directly to grandchildren to dodge estate taxes. It only applies if the transfer exceeds $13.99 million in 2025 or $13.61 million in 2024, matching the estate tax thresholds.
State Transfer Taxes
At the state level, things vary. Eighteen states plus the District of Columbia have either an estate tax on the deceased's assets or an inheritance tax paid by the recipient, and Maryland has both. Remember, estate taxes come from the estate itself, while inheritance taxes fall on you as the heir.
Frequently Asked Questions About Transfer Taxes
- Who pays the transfer tax? For real estate, it's usually the seller, but it can be split or fall to the buyer in some cases; for inheritances, the recipient pays inheritance taxes, and estates pay estate taxes.
- What are other names for a transfer tax? In real estate, you might hear it called a stamp tax, deed tax, mortgage registration tax, documentary transfer tax, or recordation tax.
- How do I calculate the transfer tax? Check your local tax rate, which could be a percentage or flat dollar amount, then apply it to the property's value—for a 1% rate, multiply the value by 0.01.
The Bottom Line
Dealing with transfer taxes is often just part of transferring estates or real property. When it's on an inheritance at the federal level, it only hits estates over $13.99 million in 2025 or $13.61 million in 2024, so most of you won't encounter it.
Other articles for you
Cash-and-carry arbitrage is a strategy to profit from pricing differences between spot and futures markets by buying the asset and shorting the futures.
Enterprise Resource Planning (ERP) is a system that integrates and manages core business processes to streamline operations and enhance communication across departments.
An orderly market is one where supply and demand are balanced, leading to fair and efficient trading that supports economic growth.
ACATS is an automated system that streamlines the transfer of securities between brokerage accounts.
Accounting policies are the specific procedures a company uses to prepare its financial statements while adhering to broader accounting principles.
The 83(b) election allows individuals to pay taxes on restricted stock at grant time rather than vesting to potentially reduce future tax liabilities.
Berkshire Hathaway is a massive holding company led by Warren Buffett, known for its diverse businesses, investments, and exceptional stock performance.
Payroll is the essential process of compensating employees while ensuring compliance with taxes and regulations.
The principal-agent relationship involves one party acting on behalf of another in finance and economics, often leading to problems due to misaligned incentives and information gaps, with new challenges from AI and ML.
An occurrence policy provides insurance coverage for claims arising from events that happened during the policy period, regardless of when the claim is filed.