21.5 Taxes Due at Closing
In addition to the buyer’s and seller’s negotiated closing costs, certain transfer-related taxes may be due at closing.
These taxes show up on (and are accounted for on) the closing statement.
State taxes on the deed (transfer taxes)
Many states impose a transfer tax when real estate is conveyed. The tax is often paid when the deed is recorded,
commonly using documentary stamps purchased from the recorder’s office. Stamps must be attached to deeds and conveyances
before they are recorded.
Transfer tax rates vary by state. They may be stated as:
- a percentage of taxable consideration, or
- a dollar amount per $100 of selling price.
If the tax is stated as “per $100 or any fraction thereof,” you must round up to the next $100.
Example:
Sale price: $350,120
Divide by 100: 350,120 ÷ 100 = 3,501.20 → round up to 3,502
If tax rate is $0.55 per $100: 3,502 × 0.55 = $1,926.10
State taxes on the mortgage
Some states also impose taxes on instruments that contain promises to pay money (such as mortgages, notes, and contracts).
These may also be paid using documentary stamps when the instrument is recorded.
In addition, some states impose a further tax on the mortgage as an item of intangible personal property.
These mortgage-related taxes are typically paid by the buyer/borrower.
Taxes at the Closing Table
Choose the best answer for each question, then select Check Answers.
Documentary stamps are most commonly associated with paying:
Many states require documentary stamps to pay transfer taxes when the deed is recorded.
A transfer tax is stated as $0.55 per $100 “or any fraction thereof.” A property sells for $200,001. How many “$100 units” are taxed?
200,001 ÷ 100 = 2,000.01, and “any fraction thereof” means round up to 2,001.
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