Definition
Transfer tax is a government tax charged when property changes hands. It's calculated as a percentage of the purchase price or a flat fee, and someone has to pay it.
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Transfer taxes, also called documentary stamps or excise taxes, are levied by state and local governments when property changes hands. The tax rate and who pays it (buyer or seller) varies significantly by jurisdiction. Some states have no transfer tax, while others charge 0.5-2% of the purchase price. The transfer tax must be paid before the deed can be recorded in many jurisdictions.
Pro Tip
Understand your state and local transfer tax obligations. These taxes significantly impact net proceeds.
Example
A property sells for $300,000 in a state with a 0.7% transfer tax. The transfer tax due is $2,100. The purchase agreement specified that the seller would pay this tax, reducing the seller's net proceeds.