Understanding Philadelphia’s Transfer Tax: A Quick Guide
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Joseph Gordon Associate EditorJoseph Gordon is an Associate Editor with HomeLight. He has seven years of experience reporting on the commercial real estate and insurance industries. He holds an MFA in Creative Writing from the University of San Francisco.
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If you’re planning to sell your home in Philadelphia, you need to have a full understanding of all of the financial implications, including real estate transfer taxes.
Transfer taxes are fees imposed by local, state, or county governments when transferring property ownership between people or entities. These taxes can significantly impact the total cost of selling your property in Philadelphia.
Our guide will explore how transfer taxes work in Philadelphia, outlining the various types and what sellers should anticipate paying.
Whether you’re a first-time seller or a seasoned homeowner, this guide will provide you with essential insights to manage the complexities of transfer taxes efficiently, ensuring you are well-prepared for your home sale.
Connect with a Top Agent to Help Maximize Value
Even rockstar agents can’t make your tax liability disappear, but HomeLight data shows that the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, helping offset the tax bill.
Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Philadelphia area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes are levied by state or local governments when the ownership of a property is transferred from one individual to another. According to the Federal Trade Commission, this tax is applicable whenever the title of a property—essentially the official rights to ownership—changes hands.
The specific amount owed in transfer taxes can vary greatly depending on the location of the property, as each state, county, and city may have its own regulations and rates for these taxes.
These taxes can be invaluable in local and state economies, as they help generate revenue that funds various public services, though the exact impact they will have on your bottom line depend greatly on your location, the amount the property sells for, and other factors.
Who pays for transfer taxes?
Both the buyer and sellers (or grantor and grantee) are responsible individually for real estate transfer taxes in Philadelphia and Pennsylvania as a whole.
What are the types of transfer taxes?
Transfer taxes will typically vary based on local guidelines but can generally be broken down into three categories — state, city, and county, depending on the state. Here’s a quick look at how it works in Philadelphia.
Property that changes hands in Philadelphia is subject to the city’s Realty Transfer Tax. This tax is due when a property deed or similar document that verifies realty ownership is filed within the city’s Records Department.
Documents this can apply to include:
- Deeds
- Easements
- Entity transfers
- Life estates
- Long-term leases (30 years or more)
- Transfers of interest in real estate company when the transfer is 75% or more
The tax is usually split evenly between the buyer and the seller, but this is not a legal requirement. The City has the right to collect 100% of the tax from either party, so it’s in the best interest of the buyer to make sure the tax is paid in full at the closing of the sale.
State transfer taxes
Pennsylvania levies its real estate transfer tax at a rate of 1 percent on the value of real estate (including contracted-for improvements to property) transferred by deed, instrument, long-term lease, or other writing.
City transfer taxes
The current rates for the Realty Transfer Tax in Philadelphia are calculated at 4.278% of the property’s sale price or assessed value, along with any assumed debt. If there is no sale price, the tax is calculated using a formula based on the property value determined by the Office of Property Assessment (OPA).
Other transfer fees
In addition to the transfer tax, you need to make sure you pay the fee on time. The tax is due when the sale document is presented for recording within 30 days after the real estate is acquired.
Penalties of up to 50% of the tax due can be levied if you misrepresent your real estate transaction or fail to record the transaction with the Records Department. If you’re selling your home For Sale By Owner, this is an area where a real estate attorney could come in handy so that you don’t end up paying more by misfiling or making a simple mistake.
In addition to transfer taxes, there are possible fees to consider, such as from a homeowner’s association or another local neighborhood organization. Again, as these can vary heavily based on location, it’s important to consult a professional.
Are transfer taxes deductible?
Unfortunately, transfer taxes are not deductible on your income tax returns. However, there is a possibility to reduce the amount of capital gains taxes you owe. Capital gains refer to the profit made from the sale of your property, and like other asset profits, they are taxable at the federal level.
The IRS allows sellers to consider paid transfer taxes as part of their selling expenses. By including transfer taxes as selling costs, sellers can decrease their home’s final sale price for tax purposes, effectively reducing the capital gains taxes on the profit received from the sale. This adjustment can lead to significant tax savings, making it a crucial consideration for sellers during the closing process.
Transfer tax exemptions
Some sellers may be eligible for exemptions from transfer taxes. In Philadelphia, real estate transactions involving transfers between certain family members are exempt from these taxes. Here are some common exemptions:
- Transfers between spouses.
- Transfers directly between ascendants and descendants, such as grandparents to grandchildren and parents to children.
- Transfers between siblings, including legally adopted and half-siblings.
- Spouses of these family members also qualify for these exemptions.
It’s important to note that all family-related exemptions require proper documentation to be recognized. Additionally, properties transferred under a will are exempt from transfer taxes.
However, if a property is part of an estate that is then sold to one of the multiple inheritors, transfer tax is applicable. This highlights the need for careful planning and understanding of the specific tax implications in your area.
Estimating transfer taxes for your home sale
When planning to sell your home in Philadelphia, accurately estimating your potential expenses and earnings is crucial. Use HomeLight’s Net Proceeds Calculator for a quick estimation of your net proceeds from the sale. This tool considers various closing costs, including transfer taxes, agent fees, and any renovations, providing a comprehensive view of your financial outcome.
For a detailed and accurate assessment of your transfer taxes and other closing expenses, it’s advisable to consult with a top real estate agent. A skilled agent can offer invaluable advice on negotiating these costs, depending on the market dynamics.
Hiring a agent early in the process allows you to explore whether certain expenses like transfer taxes can be negotiated, ensuring you are well-prepared before closing your home sale.
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