If you're buying or selling a home in South Dakota, you're probably wondering what fees and costs you should look out for. While everyone knows about closing costs and commissions, many overlook transfer taxes. Here is what to expect when it comes to South Dakota real estate transfer taxes.
Whenever real estate changes hands, you have to pay a transfer tax in addition to the other taxes and fees that are charged. Not very many people think about this cost, or who has to pay it, and it can catch a buyer or seller off guard.
Transfer taxes are charged at the state, local, and regional level. There are often specific exclusions on types of transfers that are not subject to the taxes, but a normal home sale or purchase will almost always have these fees due.
Whether you are a home buyer or seller, it's vital to work with an experienced real estate agent so that you understand the fees you will owe and how the entire home sale process works. This guide will get you started with the details of transfer taxes in South Dakota.
Who Pays Transfer Taxes in South Dakota: the Buyer or the Seller?
In South Dakota, the seller usually pays the transfer taxes. The contract will specify who pays what fees, and of course is open to negotiation.
However, normally the seller is responsible for transfer taxes, real estate commission, sales tax, attorney fees the seller incurs, a prorated portion of the property taxes, and the utilities and insurance up until the day of the sale. Title insurance can be paid by either the buyer or seller or split between the two.
A buyer can expect to pay closing costs that include lender fees, escrow, form preparation, appraisal fees, recording fees, and any attorney fees the buyer incurs. The buyer also pays for the pre-sale inspection.
How Much Are Transfer Taxes in South Dakota?
The cost of transfer taxes in South Dakota is $0.50/$500 of the home's sale value. Most real estate transfers will be charged this tax, but there are some exceptions.
Exceptions include, but are not limited to, transfers between spouses, foreclosure, distribution of estates, divorces, or pure gifts. These transactions may have other taxes and fees, however.
The median home value in South Dakota is $221,300. For a home of that price, the seller can expect to pay transfer taxes of $221.30.
The transfer taxes are in addition to recording fees and capital gains taxes that buyers and sellers also have to pay.
Can You Deduct Transfer Taxes?
Because transfer taxes are an expense related to a home sale, it's common for sellers to wonder if they can deduct the expense on their state or federal taxes.
Unfortunately, you cannot deduct it from your taxes. However, you can consider the fee when calculating the total profit you gained from the home sale. As a result, it can help reduce the capital gains taxes you may owe when a home is sold.
A home seller can exclude $250,000 of the home profits from capital gains taxes ($500,000 if you're married filing jointly.) If you've sold a more expensive home, the various fees can help you reduce your profit below that level. Transfer taxes are part of those fees.
The good news is that if you are above $250,000 (or $500,000), you're only taxed on the amount above the exclusion. So it pays to reduce that amount by every dollar you can!
Other Considerations
Generally, transfer taxes are part of the fees paid by the seller at closing. While the seller will not need cash handy, they will receive a check for the home sale that will be lessened by the various costs of selling the home.
The transfer tax amount will be noted on the HUD-1 form for residential real estate buyers and sellers. If the seller also owes capital gains taxes, that amount will not be due until the current year's taxes are filed and payment is due, usually April 15th of the following year.
Whether you're a buyer or a seller, it's important to work with a well-qualified local real estate agent. A buyer's agent will help you find a great home at an excellent price. They can help you understand the market, handle price negotiations, make sure your paperwork is in order, and suggest key professionals you need as part of the transaction.
A seller's agent helps you price and stage your home, negotiate offers, and put your home on the market at the right time. The agent will coordinate showings and help screen buyers so that you only deal with serious offers. In the end, working with a realtor can help you get thousands more for your home than you would alone.
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