Buying a home in today’s market? More than likely, you are thinking about your down payment, mortgage payment, interest rate, and simply beating out other prospective buyers. While it may be an afterthought, one thing you won’t want to be caught off guard by when buying your new house is paying closing costs.
Transfer tax is commonly lumped into the closing costs and a last-minute thought in the home buying process because, in a word, taxes are confusing! But transfer tax can be more costly than you’d think. If you are on a budget and want to make sure you are considering all of the costs, this is a line amount you can easily calculate ahead of time.
For this reason, here is a basic overview of transfer taxes and what to expect when you buy a house in Tennessee, specifically.
What is transfer tax, exactly? Transfer taxes are a percentage of the home sale amount that account for the cost of transferring the deed – the ownership of the home – from the seller to the buyer. It is important to note that transfer tax rates and expectations vary depending on the city, county, and state where the property is located.
In Tennessee, the home buyer is responsible for paying the deed transfer tax (unless otherwise agreed upon in the final contract), which is currently $0.37 per $100 of the home’s purchase price. For larger real estate transactions, transfer taxes cannot exceed $100,000 in Tennessee.
Calculating Transfer Tax
For example, when the deed on a home that is valued at $200,000 is transferred, its tax will total about $740. The total transfer tax amount is calculated as follows:
$200,000 (home value) divided by $100 = 2,000
2,000 multiplied by $0.37 (transfer tax rate) = $740 in transfer taxes
This calculation does not apply in every circumstance, however, and is meant to be an estimate. For instance, you might also be required to pay a federal transfer tax on any property you obtain as a gift or inheritance, taxes that are better known as estate tax and gift tax.
Your real estate agent or title company will be able to help inventory your property and buying situation for the most accurate estimate.
When Do You Owe Transfer Tax?
The transfer tax you owe on your newly purchased home will be due at the time your property deed is recorded with the local recorder’s office in your county. Oftentimes, it is your title company or lawyer who will deliver the deed, along with your check or cash for the transfer tax, and other recordable documents from the sale on your behalf.
However, in order for your transfer of the deed to be completed, as the buyer you must also provide proof of the value of the property to the county assessor. Your property value and local county tax rates are what the assessor will use to determine property taxes.
Tip: Property taxes are also something to consider when buying a home. Ask your real estate agent or real estate lawyer to calculate your property tax rates that you know what to expect when tax season inevitably rolls around.
Other Home-Buying Expenses
In addition to transfer tax and property tax, a few other home-buying expenses to be aware of include: