Understanding New Castle County’s Transfer Tax: A Quick Guide
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Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
If you plan to sell your home in Delaware, you need to understand how transfer taxes work, particularly in New Castle County. Transfer taxes are fees imposed by state, county, or municipal authorities when a property changes hands.
This short guide will explore how transfer taxes function in New Castle County and what you, as a seller, can expect to pay when you transfer your property. We will also cover possible exemptions for which you could qualify.
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What are transfer taxes?
Real estate transfer taxes are charged by state or local governments when property ownership is transferred from one individual to another.
According to the Federal Trade Commission, these taxes are due when the title of a property, essentially the document confirming legal ownership, is officially transferred to a new owner. This can occur through sales, inheritance, or gifting of property.
The amount owed in transfer taxes can vary significantly based on the property’s location, as different states, counties, and cities have usually established their own rates and regulations. Transfer taxes primarily serve as a revenue source for local and state governments, funding various public services and infrastructure projects.
Who pays for transfer taxes?
In Delaware and New Castle County, traditionally, both the buyer and seller pay for transfer taxes, splitting the total amount.
First-time home buyers can receive a 0.5% reduction in their rate, lowering it from 1.25% to 0.75%, claimable at closing. This reduction is capped at $2,000 and applies only to the first $400,000 of property value. This is paid by the buyer.
What are the types of transfer taxes?
Transfer taxes typically vary according to local regulations but can generally be categorized into three types: state, city, and county, depending on the state. Here’s a brief overview of how it works in New Castle County.
State transfer taxes
According to the Delaware Department of Finance, the state imposes a tax of 3.0% of the fair market value of the property, divided equally between the buyer and seller.
Local municipalities can levy a tax of 1.5%. If the local tax levied exceeds 1%, the state will reduce the state tax to 2.5%.
County transfer taxes
New Castle County’s transfer tax rate is 1.5%, which is in addition to the state’s rate.
Other transfer fees
Besides transfer taxes, there may be additional fees to consider, such as those from a homeowner’s association or other local neighborhood organizations. Since these can vary widely based on location, consulting a professional is advisable.
If you’re selling your home without a realtor, seeking professional advice might help clarify some of the nuances of the process and provide a clearer picture of what to expect regarding the pros and cons of selling a house without a realtor.
Are transfer taxes deductible?
Transfer taxes are, unfortunately, not eligible for tax deduction.
However, you might be able to lower the amount you pay in capital gains taxes.
Capital gains, defined as the profit obtained from the sale of your home or the financial gain from selling your property, are subject to federal taxation just like profits from the sale of other assets.
According to the IRS, sellers have the option to treat paid transfer taxes as selling costs, allowing them to subtract these from their home’s closing sale price. By doing so, they can diminish the capital gains taxes owed on any profit earned.
New Castle County transfer tax exemptions
Not every real estate transaction in New Castle County is subject to transfer taxes. Here are a few examples of exemptions that buyers and sellers can qualify for:
- Conveyances between spouses or parent and child
- Transfers to religious organizations or nonprofit industrial development agencies
- Transactions involving the U.S. government, the state of Delaware, their agencies, or political subdivisions, including the University of Delaware
- Leasehold interests, mortgage foreclosures, and conveyances without monetary consideration
- Property valued under $100 and commercial property leases
Additionally, property changing hands in Wilmington has its own set of possible exemptions. For a full list, consult the City of Wilmington Transfer Tax Exemption form.
Estimating transfer taxes for your home sale
To better understand what you can earn from selling your New Castle County home, consider using HomeLight’s Net Proceeds Calculator. This tool accounts for essential costs such as closing expenses, transfer taxes, agent fees, and any improvements made to the property, providing a clear estimate of your potential earnings from the sale.
Collaborating with a top real estate agent can also offer valuable insights tailored to your needs. HomeLight can connect you with a top New Castle County real estate agent today who can give you the peace of mind needed to sell your home quickly and confidently.
Editor’s note: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of New Castle County area tax services or attorneys should not be considered endorsements.
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