Understanding Tennessee’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.
One crucial cost to consider when selling a home in Tennessee is the real estate transfer tax. This tax is levied on the transfer of property ownership, and the specifics can vary based on location.
In this guide, we’ll dig into the workings of transfer taxes in Tennessee. We’ll cover who is responsible for paying these taxes, the different types involved, and what you, as a seller, can expect to pay when you transfer property ownership in Tennessee.
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 Tennessee area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes are levied by state or local governments when the ownership of a property changes hands. As defined by the Federal Trade Commission, these taxes are applicable whenever the title of a property—essentially the legal documentation of ownership—is transferred from one person to another.
This process triggers a tax obligation that varies depending on the location of the property. The specific rate and regulations are determined by local state, county, or city ordinances.
Transfer taxes serve as a crucial source of income for governments, helping to fund public services and infrastructure. The amount owed in transfer taxes can significantly impact the total cost of a property transaction.
These taxes are calculated based on the property’s sale price or its assessed value, depending on local laws. To understand how these taxes will affect a transaction in your area, consider them an essential part of budgeting for property sales.
Who pays for transfer taxes?
In Tennessee, the buyer is responsible for paying the state’s realty transfer tax, (also sometimes referred to as the “grantee”. However, exemptions may apply, which we will discuss later in this article.
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 Tennessee.
State transfer taxes
Statewide, Tennessee levies a tax of $0.37 per $100 on publicly recorded documents for all realty transfers. This tax is generally based on the greater of consideration paid or the value of the property.
County transfer taxes
Tax rates will also vary based on the county. For example, in Shelby County, a tax of 37 cents per $100 for realty transfers is levied, except for Quit Claims.
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, while necessary, are not deductible from your income tax. However, they can indirectly reduce the amount you owe in capital gains taxes. Capital gains refer to the profit made from selling your property, and just like other forms of income, this profit is taxable at the federal level.
The IRS allows sellers to include transfer taxes in the calculation of their property’s selling costs. By incorporating these taxes into the total cost of selling a home, sellers can effectively lower the closing sale price reported on their tax returns. This adjustment can subsequently reduce the taxable capital gains, potentially decreasing the amount of capital gains taxes owed.
Transfer tax exemptions
In Tennessee, some sellers may be eligible for exemptions from transfer taxes, depending on specific conditions related to the transaction. Here are examples of transfers not subject to the realty transfer tax:
- Transfer of a leasehold estate.
- Transfers involving the creation or dissolution of a tenancy by the entirety, including:
- Conveyances from one spouse to another.
- Transfers back to the original grantor and their spouse.
- Transactions involving a trustee that result in tenancy in common.
- Transfer of property formerly held by tenants in common.
- Transfers resulting from the release of a life estate to remainder interest beneficiaries.
- Real estate deeds executed by an executor to fulfill a will.
- Real estate transactions under domestic settlement decrees or between divorcing parties.
- Transfer of property to or from a revocable living trust made by the transferor or their spouse.
- Transfers where a trustee executes deeds to implement a will or distribute property to beneficiaries of a trust.
Estimating transfer taxes for your home sale
Estimating the transfer taxes for your home sale in Tennessee can be complex, but HomeLight offers tools and resources to make it easier. Utilize the HomeLight Net Proceeds Calculator for a quick estimate of what you might make from selling your home. This tool accounts for closing costs, including transfer taxes, agent fees, and any home improvements, providing a comprehensive view of your potential financial outcome.
For a more detailed and accurate assessment, it’s advisable to work with a top real estate agent. An experienced agent can offer valuable insight into the nuances of local market conditions and help negotiate these costs effectively. Starting discussions early about transfer taxes and other expenses with your agent can ensure you are fully informed and prepared to make the best financial decisions regarding your property sale.
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