Transfer Tax
Definition
A transfer tax is a tax imposed by state, county, or local government on the transfer of real property from one owner to another. It is typically based on the sale price or a flat rate per dollar of consideration.
Example
A home sells for $300,000 in a state that charges a transfer tax of $2.00 per $1,000 of sale price. The transfer tax would be $300,000 / $1,000 x $2.00 = $600. At closing, the seller pays this tax when the deed is recorded at the county recorder's office.
Exam Tip
Transfer tax calculations are common math problems on the exam. Know the formula: Sale Price / Tax Unit x Tax Rate = Transfer Tax. Exemptions are frequently tested — transfers by will, court order, or between spouses are typically EXEMPT. Remember that transfer tax is usually paid by the SELLER unless local custom dictates otherwise.
Related Title Transfer Terms
Deed
A deed is a written legal document that conveys (transfers) ownership of real property from one party to another. It must be delivered to and accepted by the grantee to be effective.
General Warranty Deed
A general warranty deed provides the greatest protection to the grantee by guaranteeing that the grantor holds clear title and has the right to sell the property. It includes covenants that protect against all defects in title, even those arising before the grantor owned the property.
Special Warranty Deed
A special warranty deed guarantees that the grantor has not caused any title defects during their period of ownership, but does not warrant against defects that existed before the grantor acquired the property.
Quitclaim Deed
A quitclaim deed transfers whatever interest the grantor may have in a property without making any warranties or guarantees about the quality of title. It offers the least protection to the grantee.
Bargain and Sale Deed
A bargain and sale deed implies that the grantor holds title and possession of the property but does not include warranties against encumbrances or title defects.
Deed Requirements (Essential Elements)
For a deed to be valid, it must contain several essential elements including a competent grantor, identifiable grantee, consideration, legal description, granting clause, signature of the grantor, and delivery and acceptance.
Frequently Asked Questions
Test Your Title Transfer Knowledge
Practice with exam-style questions to make sure you can apply Transfer Tax and other title transfer concepts.