Transfer tax is a state or local tax you pay when ownership of real estate changes hands
Transfer tax (also called deed tax, conveyance tax, or recording tax) is a fee charged by your state or county when you buy or sell property. The tax is calculated as a percentage of the sale price and is paid at closing — the moment the deed transfers from the seller to the buyer. Who pays it, how much it costs, and whether it applies at all depends entirely on where the property is located.
Transfer tax is separate from federal estate tax. While estate tax applies to the total value of everything someone leaves behind when they die, transfer tax applies to any real estate transaction during someone's lifetime or as part of settling an estate. If you inherit property and later sell it, you may owe transfer tax on that sale. If you inherit property and keep it, you typically do not owe transfer tax just for inheriting — though some states charge a small recording or filing fee to register the new deed.
Key Takeaways
- Transfer tax rates and rules vary by state and sometimes by county, ranging from zero in some states to over 2 percent in others.
- The buyer, seller, or both may be responsible for paying transfer tax depending on state law, and this is often negotiated in the purchase contract.
- Transfer tax is calculated on the sale price of the property and is paid at closing, not at tax time.
- Inherited property is usually not subject to transfer tax when you receive it, but you will owe transfer tax if you later sell that property.
Which states charge transfer tax and how much it costs
Not every state charges transfer tax. Alaska, Arkansas, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Louisiana, Mississippi, Missouri, Montana, Nevada, New Mexico, North Dakota, Oklahoma, South Dakota, Tennessee, Texas, and Wyoming do not have a statewide transfer tax. However, some counties within these states may still charge a local transfer tax.
States that do charge transfer tax set their own rates. Some examples: Connecticut charges 0.75 percent, Florida charges 0.6 percent, New York charges between 1 and 3.9 percent depending on the sale price and location, and Washington charges 1.78 percent. A few states tie the tax to the recording fee rather than a percentage — for instance, Delaware charges a flat fee per deed recorded. Because rates and rules change and vary by location, you need to check with your county assessor's office or a real estate attorney in your state to learn the exact rate that applies to a specific property.
The sale price used to calculate transfer tax is usually the actual purchase price, but some states exclude certain amounts. For example, if you are assuming a mortgage as part of the sale, some states do not tax the portion of the sale price that goes toward paying off the existing loan — only the new equity being transferred. Again, this varies by state, so the exact calculation depends on where the property is.
Who pays transfer tax: buyer, seller, or split
State law determines who is legally responsible for paying transfer tax, but the purchase contract can shift that responsibility. In some states, the seller pays by default. In others, the buyer pays. In still others, the law does not specify, and the parties negotiate who will pay.
In practice, transfer tax is often split between buyer and seller, or one party agrees to pay it all in exchange for a lower purchase price. This is a negotiation point during the offer stage, and the final arrangement appears in the purchase contract. At closing, the title company or attorney handling the transaction collects the tax from whoever is responsible and sends it to the state or county.
If you are buying a property, you should ask your real estate agent or attorney which party typically pays in your state and county, and then factor that into your offer. If you are selling, the same question matters for calculating your net proceeds.
Transfer tax when you inherit property and later sell it
Inheriting property does not trigger transfer tax in most states. When property passes to you through a will or by intestate succession (state law when there is no will), the deed is recorded in your name, but this is not considered a "sale" or "transfer" for transfer tax purposes. You may need to pay a small recording fee to register the new deed, but this is different from transfer tax and is usually under $100.
However, if you later sell that inherited property, you will owe transfer tax on the sale price at that time, just as you would if you had purchased the property originally. The fact that you inherited it does not exempt you from transfer tax when you sell. The tax is calculated on whatever the property sells for, regardless of what it was worth when you inherited it or what you paid for it originally.
One exception: some states offer a transfer tax exemption or reduced rate for transfers between family members or for transfers that occur as part of settling an estate. These exemptions are rare and state-specific, so check with your state's revenue department or a local real estate attorney if you think one might explore.
How transfer tax is paid at closing
Transfer tax is not something you pay to the IRS or on your annual tax return. Instead, it is collected and paid at closing — the meeting where you sign the deed and the title transfers. The title company or real estate attorney handling the closing calculates the amount owed based on the sale price and the applicable state or local rate, then collects it from the responsible party (buyer, seller, or both) and sends it to the appropriate state or county office.
The transfer tax amount appears on the closing disclosure, which you receive at least three business days before closing. This document shows all costs and fees associated with the transaction, including transfer tax. If the amount surprises you, that is the time to ask questions — not after you have signed.
Some states allow the transfer tax to be paid after closing if there is a delay in calculating the exact amount, but this is uncommon. In most cases, transfer tax must be paid in full at closing before the deed is recorded.
Transfer tax versus other real estate closing costs
Transfer tax is one of several costs you encounter at closing, and it is straightforward to confuse it with others. Recording fees are charges to file the deed with the county clerk — usually $25 to $100. Title insurance protects you against claims to the property and typically costs 0.5 to 1 percent of the purchase price. Mortgage origination fees are charged by your lender and vary widely. Property tax prorations are adjustments so that the buyer and seller each pay property tax for the time they owned the property during the year.
Transfer tax is distinct from all of these. It is a tax on the transfer of ownership itself, not on recording the deed, insuring the title, borrowing money, or dividing annual property taxes. Understanding which cost is which helps you budget for closing and negotiate who pays what in your purchase contract.
Frequently Asked Questions
Do I owe transfer tax if I inherit property?
No. Inheriting property does not trigger transfer tax in most states. You may pay a small recording fee to register the new deed in your name, but this is not transfer tax. However, if you later sell that inherited property, you will owe transfer tax on the sale price at that time.
Can transfer tax be avoided or reduced?
Transfer tax cannot be avoided if you buy or sell property in a state that charges it. However, some states offer exemptions for transfers between spouses, transfers to family members, or transfers as part of settling an estate. These exemptions are rare and state-specific. A real estate attorney in your state can tell you whether any exemption applies to your situation.
Is transfer tax the same as property tax?
No. Transfer tax is a one-time fee paid when ownership changes. Property tax is an annual tax you pay to your county or municipality based on the assessed value of the property. Both are real estate taxes, but they are separate and serve different purposes.
Who decides whether the buyer or seller pays transfer tax?
State law sets the default rule for who is responsible, but the purchase contract can shift that responsibility. In practice, the buyer and seller negotiate this point during the offer stage. Your real estate agent or attorney can tell you what is typical in your area and help you decide what to propose.
What if I buy property in a state with no transfer tax and later move it to a state that has one?
You cannot move real property between states. Transfer tax applies based on where the property is located, not where you live. If you own property in a state with transfer tax and later sell it, you owe transfer tax on that sale regardless of where you have moved.