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Definition of 'Transfer Tax'
Any kind of tax that is levied on the transfer of official documents or other property. Transfer tax is paid by the seller of the property. Gift and estate taxes are both transfer taxes.
Transfer tax is also known as "excise tax" in some states.
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Investopedia explains 'Transfer Tax'
Transfer taxes can be levied at the federal, state and local levels, depending on the type of property being transferred. States and local municipalities often tax the transfer of legal deeds, certificates and titles to property, while the Internal Revenue Service (IRS) taxes the value of the property itself through gift and estate taxes. Transfer taxes are usually nondeductible, although they may be added to basis on the sale of securities and/or investment property.
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Many people try to avoid this process altogether, making things difficult for heirs.
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Taxpayers with large taxable estates must take steps to reduce them before 2011.
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