Documentary transfer tax
Jim Cheney has blogged about this topic, which most buyers and sellers know little about until it comes to closing an escrow. In the last paragraph, Jim talks about ways to avoid paying this tax. Most of them are connected to why you are transferring title. A typical sale between a buyer and a seller is going to warrant tax being paid, however, if you are transferring between parent and child, or spouses, no tax needs to be paid. There are several other instances, as well. But, overall, the local government will find a way to get your money. lol
I recently took a listing to sell a residential home. I emailed the seller a statement of what I estimated the sale would cost him. He asked if he could pay his documentary transfer tax (DTT) at the end of the year, when he does his taxes, and inquired if he could claim the tax as an income tax deduction.
I can't say that his questions are exactly "common", however I frequently see that DTT is misunderstood. DTT is not "property tax". It is the tax a city, and/or county places on the sale of a property. Consider it a sales tax. In Sonoma County either the seller or buyer (traditionally it's the seller) pays the tax through escrow. Sonoma County transfer tax is .55 cents per $500 of sales price. It is easier to calculate the amount due by ding the sales price by $1.10 per $1000. rather than .55 per $500. To determine the tax due on $325,000 it's easiest to divide the sales amount by $1000 which would result in $325 multiplied by $1.10 equals $357.50 of county tax due.
In Sonoma County five cities also charge a DTT. For example the city of Santa Rosa charges $2. per $1000 transferred. This tax would be $650 in addition to the county DTT of $357.50
I want to tread very carefully on the topic of tax advice. Regarding my client's question: "Can the tax be paid at the end of the year?" I've never seen it paid anytime other than at close of escrow. I consulted with a escrow officer who told me that they know of no exceptions to paying the tax that way, however there are exceptions to paying the tax all together.
If you are interested in a list of DTT exceptions, you should consult with a title officer, real estate attorney, or tax professional. I can say that I have bought numerous homes, and have never claimed my DTT as an income tax deduction, however there may be tax benefits when the home is sold. These are all questions you should talk to a tax professional about.
Jim Cheney, Broker
"Your Realtor in Rincon Valley"
Wine Country Real Estate
Santa Rosa, Sonoma County
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