Conveyance Tax

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Conveyance Tax

What Is a Conveyance Tax?

Conveyance tax is a state, county, or municipal tax levied on the transfer of real property. This tax is often computed as a percentage of the purchase price. If the property is sold for a very low price or transferred for free, such as between family members, it may be exempt from conveyance tax but, in certain situations, may still be liable to estate tax.

A real estate transfer tax is another name for the conveyance tax.

Key Takeaways

  • A conveyance tax is a tax charged on the value of a real estate transaction, which is usually collected at the municipal or state level.
  • Conveyance taxes are sometimes levied as a flat percentage rate that varies by jurisdiction.
  • In certain jurisdictions, separate levels of government, such as the municipality and the state, may levy numerous conveyance taxes.
  • In most cases, the conveyance tax is paid at closing by the seller.

Understanding Conveyance Tax

In some jurisdictions, the transfer tax grows with the selling price of the property; in others, it is a fixed amount. The conveyance tax rate may also vary depending on whether the property is residential, nonresidential, or unimproved land. While state and local transfer taxes are prevalent, no federal conveyance taxes apply. This tax is not levied in the following states:

  • Mississippi
  • Missouri
  • New Mexico
  • North Dakota
  • Wyoming

Conveyance tax rates are often a flat percentage rate. Colorado, for example, charges a 0.01% transfer tax on all real estate transactions, but Arkansas and New Hampshire charge 0.33% and 1.5%, respectively (as of 2017).Although it is uncommon, conveyance tax might also be a flat amount, as in Arizona. Regardless of the property’s worth, the state levies a $2 transfer tax.

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In other circumstances, state conveyance tax rates vary depending on the value of the transferred property. In Connecticut, for example, the tax rate on residential real estate transactions valued less than $800,000 is 0.75%, but it rises to 1.25% for values more than that amount.

For example, if a person sells his Connecticut property for $1 million, he must pay the state $6,000 on the first $800,000 and $2,500 on the remaining $200,000 in taxes. In addition, he must pay a municipal transfer tax.

Multiple Real Estate Transfer Taxes

Sellers in certain places must pay state, county, and municipal transfer taxes. As of 2016, sellers in Chicago must pay a 0.1% conveyance tax to Illinois, a 0.05% county tax, and a 1.05% municipal tax.

In other circumstances, conveyance tax rates vary depending on the kind of property sold, among other considerations. In New Jersey, for example, elderly and the handicapped pay lower tax rates. States such as Oklahoma and Alabama levy various transfer taxes depending on whether a deed or a mortgage is transferred.

Paying Conveyance Taxes

Sellers have traditionally paid conveyance tax, although the laws vary by region. The seller pays the real estate transfer tax in New York, but if he is exempt, the liability transfers to the buyer. As of 2016, if the property is valued $1 million or more, the buyer is subject to an extra 1% transfer tax, but if he fails to satisfy that duty, it falls to the seller. In New Hampshire, the conveyance tax must be paid by both the buyer and the seller.

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