What Is a Conveyance Tax?
Conveyance tax is a tax imposed on the transfer of real property at the state, county, or municipal level. This tax is generally calculated as a percentage of the sale price. If the property is sold for a very low amount or is transferred for free, such as between family members, it may be exempt from conveyance tax but may still be subject to estate tax, in some cases.
The conveyance tax is also called a real estate transfer tax.
- A conveyance tax is levied on the value of a real estate transaction, often at the local or state level.
- Conveyance taxes are often imposed as a flat percentage rate, which will vary by jurisdiction.
- Certain jurisdictions may also see multiple conveyance taxes imposed by different levels of government, such as municipality and state.
- In general, sellers will pay the conveyance tax at closing.
Understanding Conveyance Tax
In some jurisdictions, the conveyance tax increases as the property's sale price increases; in other jurisdictions, it is a flat rate. The conveyance tax rate may also depend on the type of property, such as residential, nonresidential, or unimproved land. While state and municipal conveyance taxes are common, there are no applicable federal conveyance taxes. Five states do not impose this tax:
- New Mexico
- North Dakota
Conveyance tax rates often consist of a flat percentage rate. For example, Colorado levies a 0.01% transfer tax on all real estate sales, while Arkansas and New Hampshire levy a 0.33% and 1.5% rate, respectively (as of 2017). Although it is rare, conveyance tax can also be a flat fee, such as in the state of Arizona. The state collects a $2 transfer tax regardless of the property's value.
In other cases, state conveyance tax rates vary based on the value of the property transferred. For example, the tax rate for residential real estate in Connecticut is 0.75% on transfers worth less than $800,000, but it increases to 1.25% for amounts that exceed that threshold.
To illustrate, if someone sells his Connecticut home for $1 million, he must pay the state $6,000 on the first $800,000 and $2,500 on the remaining $200,000. On top of that, he must also pay a municipal conveyance tax.
Multiple Real Estate Transfer Taxes
In some areas, sellers face state, county, and municipal conveyance taxes. In particular, as of 2016, sellers in Chicago must pay 0.1% conveyance tax to Illinois, 0.05% to the county, and 1.05% to the city of Chicago.
In other cases, conveyance tax rates vary based on the type of property sold, as well as other factors. New Jersey, for example, offers reduced tax rates to seniors and the disabled. States such as Oklahoma and Alabama charge different transfer taxes based on whether a deed or a mortgage exchanges hands.
Paying Conveyance Taxes
Traditionally, sellers pay conveyance tax, but the rules vary from area to area. In New York, the seller pays the real estate transfer tax, but if he is exempt, the obligation passes to the buyer. If the property is worth $1 million or more, as of 2016, the buyer incurs an additional 1% conveyance tax, but if he cannot meet that obligation, it passes to the seller. In New Hampshire, the buyer and the seller must each pay the conveyance tax.