Transfer Tax Exemptions

In most parts of Pennsylvania there is a 2% transfer tax on real estate transfers, with 1% going to the state and 1% to the local government.  The tax rate is higher in the City of Philadelphia, amounting to 4% of the total purchase price.  With the dramatic escalation in the price of residential and commercial real estate, the realty transfer tax can be significant.  On a $500,000 home, for example, transfer tax outside Philadelphia is typically $10,000.  (It would be $20,000 in the City!)  It is usually split evenly between buyer and seller, although this is negotiable.

Certain property transfers are exempt from the realty transfer tax, however.  Here is a list of some of the more common exempt transfers:

  • transfers between husband and wife, between parent and child or the spouse of such child, between brother and sister or spouse of a brother or sister, and between a grandparent and a grandchild or the spouse of such grandchild;
  • transfers for no consideration (i.e. by gift) which pass property under a will or by intestate succession;
  • a transfer for no consideration to a trustee of an ordinary trust where the transfer would be exempt if it was made directly from the property owner to all of the possible beneficiaries under the trust (such as where all beneficiaries are exempt family members);
  • transfers for no consideration to a trustee of a living trust from the creator of the living trust;
  • transfers for no consideration between a principal and an agent or straw party;
  • transfers made by corporations in connection with a merger or consolidation;
  • transfers from a corporation to its shareholders of real estate so long as they receive the real estate in the same proportion as their stock ownership and where they have been stockholders for at least 2 years;

By far the most common exempt transfer is between family members.  For example, when two individuals get married they often choose to re-title real estate in both names where it was previously owned by only one of them.  This is an exempt transfer.  Parents often transfer real estate to a younger generation in connection with estate planning.  These are also exempt transfers.

– Kevin Palmer

Posted in Finance / Taxes