Understanding Massachusetts’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.
If you’re planning to sell your home in Massachusetts, understanding the costs involved, including real estate transfer taxes, is important.
Transfer taxes are fees imposed by state, county, or city governments on transferring property from one owner to another. In Massachusetts, these taxes can vary depending on your property’s location and other factors.
Our guide will offer a quick overview of how transfer taxes work in Massachusetts, detailing who is responsible for these costs and what you, as a seller, can expect to pay when you transfer ownership of your property.
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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 Massachusetts area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes are fees levied by government entities when ownership of property is transferred from one party to another.
According to the Federal Trade Commission, this tax is typically required at the state or local level when the title to property—essentially your legal right to ownership—changes hands. This tax applies whether you are transferring ownership of a home, land, or other types of real property.
The amount owed in transfer taxes can vary widely depending on where the property is located, as each state, county, and city can set its own rates and rules.
These taxes are a significant source of revenue for local governments, funding various public services and infrastructure projects.
Who pays for transfer taxes?
In Massachusetts, the responsibility for paying transfer taxes falls to the seller. Typically, it’s the seller who bears the cost of the transfer taxes, as part of the closing costs associated with selling property. However, the distribution of these fees can be negotiated during the sale process.
Since these practices can differ even within the state, it’s essential for both buyers and sellers to understand the local norms and any agreements made during the transaction.
Sellers should consult with a real estate professional or attorney to clarify who is responsible for these taxes in their particular sale to avoid any surprises at closing.
What are the types of transfer taxes?
Transfer taxes will typically vary based on local guidelines but can generally be broken down into three categories — state, city, and county, depending on the state. Here’s a quick look at how it works in Massachusetts:
State Deeds Excise Tax
Statewide, the transfer tax, known in The Bay State as a deeds excise tax, is levied at a rate of $2.28 for each $500 of the total consideration of the transaction. The exception is Barnstable County, which has a rate of $2.85 per $500 of the total transaction.
For example, a property that changes hands for $450,000 would yield a deeds excise tax of $2,052.
If the property changes hands for less than $100, no excise tax is due.
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 from your income tax returns. Despite this, they can play a role in reducing the capital gains taxes you might owe. Capital gains refer to the profit you earn from selling your property, similar to earnings from other types of investments, and are taxable at the federal level.
The IRS allows sellers to consider transfer taxes as part of the selling costs. This means these taxes can be subtracted from the closing sale price of your home, as outlined by IRS guidelines. By doing so, you can effectively lower the capital gains tax burden on any profit you realize from the sale.
Transfer tax exemptions
In Massachusetts, some sellers might be eligible for exemptions on transfer taxes, depending on specific circumstances related to the property transaction.
Exemptions can reduce the financial burden during the transfer of property.
Here are several scenarios where transfer tax exemptions may apply:
- Mortgage deeds
- Deeds that correct, modify, or supplement previously recorded deeds
- Deeds transferred between husband and wife, or parent and child, when no monetary consideration is exchanged
- Tax deeds
- Deeds releasing property which serves as security for a debt
- Deeds for the division of property between owners without any monetary consideration
- Foreclosures of mortgages by the foreclosing parties
Estimating transfer taxes for your home sale
Estimating the transfer taxes for your home sale in Massachusetts can be complex, but using tools like HomeLight’s Net Proceeds Calculator can simplify the process. This calculator provides a quick estimation of your potential earnings from selling your home by factoring in various closing costs, including transfer taxes, agent fees, and any renovations.
For a more precise assessment of your specific situation, including transfer taxes and other closing expenses, it’s advisable to consult with a top real estate agent. Real estate agents have the expertise to guide you through the complexities of home selling, including negotiations over who bears the cost of transfer taxes.
Engaging an agent early in the process ensures that you have a knowledgeable ally who can help navigate these financial aspects effectively.
Header Image Source: (Simona Stefanova/ Unsplash)
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