Understanding the Texas Transfer Tax: A Quick Guide
- Published on
- 3 min read
-
Joseph Gordon Associate EditorClose
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.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Selling your home in Texas? You might have some questions about the Texas transfer tax.
Transfer taxes are fees the state, county, or city imposes when property ownership is transferred from one party to another. These taxes can vary widely depending on where you’re located and the specifics of the property sale.
In this guide, we’ll dig into how transfer taxes work in Texas, giving you insight into what you can expect when it comes to transfer taxes in the Lone Star State.
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.
What are transfer taxes?
Real estate transfer taxes are assessed by state or local authorities when the ownership of a property changes hands. According to the Federal Trade Commission, this tax is triggered once the title—or the legal rights to a property—is transferred from one person to another.
The actual tax rate and the responsibility for paying this tax can vary significantly depending on the property’s location, reflecting different state, county, or city regulations.
Who pays for transfer taxes?
Unlike many other states, Texas does not impose a state transfer tax on real estate transactions, which can alleviate some of the financial burden on sellers.
However, property taxes in the Lone Star State are some of the most expensive in the country. In fact, only 13 other states have higher property taxes. Additionally, closing costs can really cut into your bottom line, so it’s important to have a good idea of what you might be paying before the transaction is complete.
For example, property taxes can typically average $2,275 per year in Texas, and this is customarily paid by the seller (based on $125,800 median assessed value or 1.81%)
Other transfer fees
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.
If you’re selling your home for sale by owner, consulting a professional might help with some of the finer points of the process and give you a better idea of what you can expect.
Are transfer taxes deductible?
Though Texas does not have transfer taxes, it’s important to note that generally, transfer taxes are not deductible from your income taxes. However, you may be able to reduce your overall capital gains taxes, which are the taxes on the profit made from selling your property.
Capital gains are computed on the difference between the sale price and the property’s purchase price, adjusted for various factors, including selling costs. These are levied at the federal level, so you will still be responsible for these costs despite not paying transfer taxes.
Estimating transfer taxes for your home sale
Despite not having to worry about the Texas transfer tax, you should get a preliminary estimate of what you could earn from selling your Texas home. Try HomeLight’s Net Proceeds Calculator.
This useful tool considers closing costs such as agent fees and any necessary home improvements to provide a comprehensive overview of your financial return from the sale.
For a detailed and accurate evaluation of your transfer taxes and other related selling expenses, hiring a top real estate agent is highly recommended.
These professionals can guide you through the nuances of local real estate regulations, including tax obligations and negotiation possibilities. Discussing these financial responsibilities with your agent early in the selling process can enhance your strategy, allowing you to negotiate these costs effectively based on current market dynamics.
Header Image Source: (Roger Starnes Sr / Unsplash)
