Whenever a piece of real estate changes hands, the transaction may be subject to a transfer tax. The rules for this tax vary considerably depending on where the property is located. Find out about Wisconsin real estate transfer taxes here.
When buying or selling a home, there are a few taxes that you need to be aware of. One of them is the real estate transfer tax.
This tax may be levied by the state, county, or municipality where the home is located. Sometimes, more than one transfer tax is applicable. For example, a tax from both the state and the municipality.
The rules for transfer taxes vary quite a bit by location. Some states don't even have a tax and the ones that do have different rules for calculating it.
Keep in mind that even if your state doesn't have one, you still may have to pay the tax to the county or municipality. Speaking with a knowledgeable, local real estate agent is the best way to find out what taxes are applicable in your case.
Let's take a look at the Wisconsin real estate transfer taxes here.
Who Pays Transfer Taxes in Wisconsin: the Buyer or the Seller?
Just as the rules for calculating taxes vary by state, so do the laws about who pays them. Some states place the burden on the buyer, others on the seller, and others split the burden between them both. Some states also allow the buyer and seller to agree to a different arrangement in the contract.
In Wisconsin, the seller is responsible for paying the tax.
How Much Are Transfer Taxes in Wisconsin?
The state of Wisconsin charges the transfer tax based on the sale price. They charge at a rate of $0.30 for every $100 (or fraction thereof) of the purchase price. Thus, if the sale price is $250,000, a transfer tax of $750 is due.
Additionally, you may be responsible to pay local transfer taxes as well. Talk to a local agent to find out what these taxes may be.
Can You Deduct Transfer Taxes?
If you find that you are responsible for paying the transfer taxes, you may be wondering if you can deduct them like you can property taxes.
Unfortunately, you can't.
But there is one other thing you can use them for.
As the seller, you may be responsible for paying capital gains taxes. This tax is paid to the IRS and is assessed on any profit you make over $250,000 ($500,000 for married couples).
The profit is determined by taking the sale price minus your cost basis. The cost basis includes how much you paid for the home, the cost of any repairs or upgrades, and a few other miscellaneous costs. One of which is the transfer tax bill.
How does this help you?
Imagine that you sell a home for $500,000. You purchased the home for $200,000 and made $25,000 worth of improvements to it. Your cost basis is $225,000. This means you made $275,000 of profit off the sale. You're allowed to exclude $250,000, so your capital gains taxes will be assessed on only $25,000.
The state transfer tax in Wisconsin for a sale like this adds up to $1500. You can add that to your cost basis, bringing it up to $226,500. Now your calculated profit will only be $23,500 and that's the amount you'll have to pay capital gains taxes on.
Any other local transfer taxes you have to pay are also eligible to be added to your cost basis. Every little bit helps.
Other Considerations
While you will pay any capital gains tax when you file your taxes, you can expect transfer taxes to be paid at closing. Whether you are the buyer or the seller, you will see the amount due listed on your HUD-1 settlement forms.
Buying and selling real estate is a complicated process. Transfer taxes are just one of a million details that you have to take care of.
The best way to make sure that everything gets taken care of correctly is to work with an experienced real estate agent. You may shy away from hiring a real estate agent because you want to save money on the sale. but a knowledgeable agent is worth their weight in gold.
Not only do they help to relieve a lot of stress during the process, but they also make sure that all the little details are taken care of. It's not every day that you are involved in a real estate transaction. but real estate agents are. The expertise that they bring to the table is invaluable.
Clever Partner Agents are experienced real estate agents who have agreed to provide services to Clever clients for a fraction of their normal commission. You still get the same great service and keep more of the profit at closing.
Ready to get started? Check us out here at Clever today!
