Understanding Alabama’s Transfer Tax: A Quick Guide
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Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
Selling your home in Alabama involves more than just finding the right buyer and agreeing on a price. One important aspect to consider is real estate transfer taxes, a fee imposed by the state, county, or city when property ownership changes hands. These taxes can vary based on location and property value, impacting the overall cost of your transaction.
In this short guide, we’ll explain how transfer taxes work in Alabama and what sellers can expect to pay. Understanding these taxes can help you better prepare for your home sale, ensuring there are no unexpected financial surprises. Keep reading to learn about the different types of transfer taxes in Alabama and how they might affect your bottom line.
Connect with a Top Agent to Help Maximize Value
Even rockstar agents can’t make your tax liability disappear, but HomeLight data shows that the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, helping offset the tax bill.
What are transfer taxes?
The Federal Trade Commission describes transfer taxes as fees that state or local governments impose when the title to a property transfers from one owner to another. In other words, whenever you sell your home and transfer the legal ownership to the buyer, the government charges a tax on this transaction.
The amount you owe in transfer taxes depends on your property’s location, as different states, counties, and cities have their own guidelines. These taxes are a way for the government to generate revenue, similar to other forms of taxation, and are an essential factor to consider when planning your home sale.
Who pays for transfer taxes?
In Alabama, either the buyer or the seller are responsible for paying the state’s real estate transfer tax (referred to as a recordation tax). This will depend on the transaction agreement, so it’s important to have a clear understanding of what’s expected of you as a buyer or a seller when moving property in Alabama.
What are the types of transfer taxes?
Transfer taxes will typically vary based on local guidelines relative to city, state, and county ordinances. Here’s a quick look at how it works in Alabama:
State deed recordation taxes
Alabama’s recordation tax is levied at a rate of $.50 per $500 of value or fraction thereof. Two-thirds of this is funneled into the State General Fund, while the remaining third is allocated to the County where the transaction occurs.
Other transfer fees
In addition to transfer taxes, there are possible fees, such as from a homeowner’s association or another local neighborhood organization. Again, as these can vary heavily based on location, it’s important to consult a professional.
If you’re selling your home for sale by owner, consulting a professional might help with some of the finer points of the process and give you a better idea of what you can expect.
Are transfer taxes deductible?
Transfer taxes are generally not deductible on your income tax return. However, there is a way to reduce your capital gains tax liability potentially. Capital gains are the profits you earn from selling your home, which are subject to federal taxation, much like profits from other investments.
According to the IRS, you can treat transfer taxes as selling costs, which allows you to subtract these expenses from your home’s selling price. This reduction in your sale price can help lower the amount of capital gains tax you owe on the profit from your home sale.
Transfer tax exemptions
In Alabama, some sellers may qualify for exemptions from transfer taxes, depending on specific circumstances. Potential exemptions include:
- Deeds valued at less than $500
- Deeds filed to modify the title to real estate
Estimating transfer taxes for your home sale
For a quick estimation of what you might make from selling your Alabama home, try HomeLight’s Net Proceeds Calculator. This tool factors in your closing costs, including transfer taxes, agent fees, and renovations, providing a clear picture of your potential financial outcome.
To get an accurate assessment of your transfer taxes and other closing expenses, consider consulting a top real estate agent. These costs, often viewed as the responsibility of the buyer or seller, can sometimes be negotiated based on the market situation.
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