What are real estate transfer taxes? Who has to pay them? Learn about real estate transfer taxes for the state of Maine.
The average homeowner who purchases a $150,000 home will pay approximately $3,700 in closing fees. The fees may include an application fee, an attorney fee, the cost of a credit report, the cost of a home inspection, and the lead-based paint inspection.
All of these fees are somewhat understandable. The bank incurs costs from processing your loan, so you help pay for the cost by paying an application fee. Of course, you want an attorney to look at the necessary documents regarding the home’s purchase, and the attorney needs to get paid.
But did you know that a large chunk of your closing cost is a transfer tax? The transfer tax is paid, so the ownership of the property is transferred from the seller to the buyer.
This tax, which can be collected by the city, county, or state (or all three), is usually based on a percentage of the sale price of your home. The real estate transfer tax can also be called the deed tax, mortgage registry tax, or stamp tax.
Since this tax is highly regional, it is essential that both buyers and sellers work with an experienced real estate agent, so both parties understand their financial responsibility regarding this expense. No one wants to be surprised with an expensive tax at closing.
Who Pays Transfer Taxes in Maine: the Buyer or the Seller?
Both the buyer and seller pay transfer taxes in Maine.
There are 21 exemptions to the transfer tax laws as outlined in Chapter 711-A: Real Estate Transfers document. At the risk of spoiling the plot, it is essential to know that real estate transfer taxes do not apply when a property is transferred between family members. In Maine, spouses, parents, children, grandparents, and grandchildren can transfer ownership to and from each other without having to pay a transfer tax.
Real estate that is transferred between spouses in divorce proceedings is also not taxed.
Are you wondering if you meet any of the other 19 exemptions listed in the document? You can look at the tax form on the State of Maine’s website, but unless you are an accountant or lawyer, it may not make much sense to you. Another professional that knows about the idiosyncrasies regarding local tax laws is your local real estate agent. Talk with your agent to see if you could be exempt from this tax.
How Much Are Transfer Taxes in Maine?
The current rate for the Maine transfer tax is $2.20 per every $500 of the sale. This rate is split evenly between the seller and the purchaser. As such, each party is required to pay $1.10 per every $500 or $2.20 for every $1,000 of the price of the home.
For a $150,000 home, the buyer and seller in Maine will both pay $330 for the state transfer tax.
Can You Deduct Transfer Taxes?
While property taxes can help relieve your tax bill at the end of the year, transfer taxes are not tax deductible.
If you are the seller, you can include the transfer tax in the "cost basis" of the property.
This is how it works:
You sell a property and make money on the sale. You may be charged a capital gains tax on the amount of money that you made. The amount you spent on the transfer tax can be subtracted from your profit so that your capital gains tax bill can be reduced.
You might not be charged capital gains tax if you lived in the house that you sold more than two years.
Other Considerations
When learning about complicated issues like taxes and closing costs, sometimes it is easier to have an expert sit across the kitchen table from you to explain things. That’s why you should reach out to a Clever Partner Agent in Maine.
Whether you are buying or selling property, your agent will talk you through the process and make sure you understand all the different fees and taxes that you will be charged at closing.
One thing to remember, our agents often sell for a flat fee. Rest assured that’s one expense that won’t be a surprise on closing day.
