Understanding Iowa’s Real Estate 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.
One important aspect to consider when selling your home in Iowa is real estate transfer taxes. These are fees imposed by the state, county, or city when property ownership is transferred from one person to another.
Understanding how these taxes work can help you budget effectively and avoid any surprises at closing. Our short guide will walk you through the essentials of transfer taxes in Iowa, detailing who is responsible for paying them, the types of transfer taxes that may apply, and how much you can expect to pay when selling your property.
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.
Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Iowa area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes, as defined by the Federal Trade Commission, are taxes imposed by state or local governments when the title of a property is transferred from one owner to another. This means that whenever you sell your home and transfer its legal ownership to a buyer, you are required to pay this tax.
The amount you owe in transfer taxes is determined by the location of your property, with specific rates set by state, county, or city authorities. These taxes are designed to generate revenue for local governments, much like other types of taxes.
Who pays for transfer taxes?
In Iowa, the seller (or grantor) is responsible for the state’s real estate transfer tax. However, there are some exceptions, depending on the type of transaction or the property changing hands, which we will discuss later in this post.
What are the types of transfer taxes?
Transfer taxes will vary based on state, city, or county guidelines. They are also sometimes referred to by a different name, such as a “documentary tax” or a “recordation tax” but they amount to the same thing: a tax levied by a local government when a piece of real estate changes hands.
Here’s a look at how it works in Iowa.
State transfer taxes
Transfer taxes in Iowa are levied at a rate of $0.80 per $500 of the total price of the property , with the first $500.00 exempt from the transfer tax rate.
For example, if a property sold for $400,000, the seller would be responsible for the tax levied on $399,500, which, based on the state’s transfer tax rate, would equal $638.
These taxes are spread out throughout various state and county funds.
For example, 17.25% of the tax receipts are retained by the county. Of the remaining 82.75%, 90% goes in the State General Fund, 5% in the Housing Trust Fund, and 5% in the Shelter Assistance Fund.
Other transfer fees
In addition to transfer taxes, there are possible fees to consider, 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 not deductible on your income tax returns. However, they can help you reduce the amount of capital gains taxes you owe. Capital gains refer to the profit you make from selling your home, and this profit is subject to federal taxes, similar to gains from other assets.
To potentially lower your capital gains tax, you can treat the transfer taxes you paid as selling costs. According to the IRS, by including transfer taxes as selling costs, you can deduct these expenses from your home’s final sale price. This deduction reduces the overall profit you report, thereby decreasing the capital gains taxes you need to pay.
Transfer tax exemptions
Some sellers might be eligible for exemptions on transfer taxes, depending on their location. Common exemptions include:
- Deeds where the United States or the state are the grantor or grantee
- Deeds that secure a debt or obligation, except those included in the sale
- Deeds that correct or modify a deed previously recorded
- Deeds between husband and wife, or parent and child
- Deeds executed between former spouses
- Deeds transferring easements
- Deeds executed by public officials performing official duties
Estimating transfer taxes for your home sale
Estimating transfer taxes for your home sale in Iowa can be simplified by using HomeLight’s Net Proceeds Calculator. This tool quickly estimates what you’ll earn from selling your home, factoring in closing costs such as transfer taxes, agent fees, and any renovations. It provides a clear picture of your financial outcome.
For a more precise evaluation of your transfer taxes and other closing expenses, it’s advisable to consult a top real estate agent, which HomeLight is happy to assist you with.
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