Many cities, counties and states, facing budget shortfalls and increased demand for funds to support housing and other initiatives, are considering increases in deed and mortgage transfer tax rates, and in some cases those increases are material.
The District of Columbia's proposed 2020 budget would increase the local combined transfer tax rate to 5 percent, an increase from the current rate of 2.9 percent. This new rate, if enacted, would go into effect on October 1, 2019. In DC, deed transfer taxes are generally paid 50 – 50 by purchasers and sellers, and the tax applies both to property deeds and indirect transfers of real property interests under certain circumstances. The tax on deeds of trust would be 2.5 percent, an increase from 1.45 percent. The current rates have been in effect for many years.
The District of Columbia transfer tax rates would exceed the rates applicable to transactions in neighboring Maryland (where the rates vary by county, but generally do not exceed 3 percent) and in Virginia (where the rates also vary by jurisdiction but in general do not exceed .55 percent). Thus, the transfer tax rate in DC would exceed Virginia's by almost a factor of 10.
Other jurisdictions that have recently considered material increases, or that have already increased transfer tax rates, include Chicago, parts of northern California, Massachusetts generally and the city of Boston specifically.
Transfer taxes are often a material cost in commercial transactions, and in many cities and counties, the taxing authorities frequently change the rules applicable to the calculation of these taxes. There are, of course, techniques available for the mitigation of such costs.
Another recent development is that many states, counties and cities are seeking to impose transfer taxes on indirect transfers of real estate that do not involve the filing of a real estate deed.
DLA Piper real estate lawyers throughout the US are conversant with all these issues, and we recommend you contact us whenever you are structuring a purchase, financing or other transaction to ensure you are aware of the impact of these significant costs and ways to reduce them.