If you're thinking of selling or buying a house, you may be asking, what will my tax obligations be? Here's our comprehensive guide for Massachusetts real estate transfer taxes, how much they are, and how you can negotiate who pays them.
Transfer taxes are imposed by counties, municipal authorities, and states on real estate transactions, and they vary from state to state. A home seller will usually (but not always) pay the transfer tax when he or she transfers legal deeds, certificates, and titles to the property that is being sold. In Massachusetts they may also be called deed stamps or an excise tax.
The tax is based on the assessed value of the property being purchased, and it is usually calculated as a percentage of the sale price.
In Massachusetts, the Department of Revenue collects the tax, and the stamps on a deed are proof of payment.
Who Pays Transfer Taxes in Massachusetts: The Buyer or Seller?
In Massachusetts, the responsibility for the tax falls on the seller. Remember, that when you buy a property everything is up for negotiation and who pays the transfer tax or how it's split can be arranged by the buyer and the seller.
How Much Are Transfer Taxes in Massachusetts?
The amount of the transfer tax depends on how much the property sells for and its location. The basic transfer tax rate in Massachusetts is $2.28 per $500 of property value.
However, some counties charge additional transfer taxes. For example, in Barnstable County the combined state and county excise rate is $2.85 per $500.
To pay the tax, you purchase excise stamps from the Registry of Deeds in the county where the property is sold. You then attach the stamps to the deed or certificate of sale or transfer.
If a taxpayer does not put enough excise stamps on a deed to cover the transaction, the state can assess the additional tax within three years. There will also be an additional interest charge.
If the taxpayer does not put any excise stamps on a deed at all, the Department of Revenue can assess the tax and penalties at any time.
Can You Deduct Transfer Taxes?
Transfer taxes are not tax deductible for either the buyer or the seller. However, they can save you money in other ways.
Transfer taxes are considered in the cost basis of the property, which is used to calculate the final capital gain on the sale. Raising the cost basis of the home decreases the total gain on sale. That means you will pay less in total taxes you pay on the gain.
For example, if you bought a house for $300,000, and sold it later for $600,000, your capital gain would be about $300,000. If you file your taxes as a single person, you must pay taxes on any capital gains above $250,000 (the limit is $500,000 for joint returns).
As a single filer you would pay a capital gains tax on the $50,000. But if you paid $3,000 in transfer taxes, you can subtract this from what you made in profit. You will pay the capital gains tax on only $47,000, saving you money on what you owe.
Speak to a local real estate agent about other tax savings for buyers and sellers. They will also be able to guide you to a host of government programs and grants that can cut down on your closing costs.
Other Tax Considerations
The Massachusetts real estate tax stamps are mandatory payments. The cost of the tax needs to be factored into the total cost of the purchase property. Since it is negotiable, both the buyer and seller should familiarize themselves with it.
One way to do this is to talk to a local realtor. A Clever Partner Agent can help you navigate all the fees and taxes you will have to pay whether you are buying a home or selling one. They can also let you know about negotiating who will pay the tax, the buyer or seller.
All Partner Agents are up-to-date on the current trends of the real estate market and are also familiar with all of the legal and tax implications of home sales. They are top negotiators from major companies like Keller Williams, Century 21, and RE/MAX. They are also full service, so you will not sacrifice any benefits while saving money.