It’s always a wise decision to make yourself aware of the associated upfront costs, whether you’re buying or selling a property.
For example, home sellers and buyers have to pay for the transfer tax, conveyance tax, and revenue stamps to finalize the deed even after the initial sale price has been detailed.
Out of all these extra payments, one that most individuals aren’t usually aware of until later is “stamp tax,” also referred to as “excise tax.”
To put things into further context, let’s learn what stamp taxes are and why they are a necessary part of the home purchasing process.
So what are revenue stamps?
Revenue stamps are similar-looking to postage stamps. However, while the latter is used for posting simple letters for mailing purposes, the revenue stamp is affixed to particular deeds (documents related to estate transfers).
These stamps indicate a successful transfer of taxes (to the county, state, or city) relating to the conveyance of a property. Moreover, the revenue generated from these stamps is usually utilized to improve and develop schools, parks, hospitals, and other community facilities.
The revenue stamp’s tax rate and price structure differ from county to county. However, for better understanding, let’s suppose your state requires individuals to attach a $1 revenue stamp to deeds for each 1,000 section of the sale price.
Keeping that in mind, if someone is paying $50,000 to acquire any land, there should be $50 worth of stamps affixed to the property documents.
Who pays for the revenue stamp?
Stamp tax is a mandatory and legal fee typically collected by the Department of Revenue run by the state government. In general, the responsibility to pay for this tax falls onto the shoulder of the property seller in most locations.
However, it’s vital to note that when defining the real estate subject, most of these happenings are up for negotiation. Therefore, both parties (i.e., the buyer and the seller) must go through the associated taxes well in advance to prevent any confusion at the last minute.
Can the location of your property make a difference in real estate taxes?
Suppose person ‘A’ is buying a property worth $150,000 in New York. At the same time, person ‘B’ buys a house in Florida, recording the same financial worth for their property. While most people would assume that the real estate transfer tax applied to both individuals must be the same, that’s extremely unlikely to happen.
The sale price for each property depends upon the “location” of the property. This includes assessment of different factors, including the county the house is located in, the district school it encompasses, and the state of the local industry. This alters the property’s transfer and conveyance fees structure accordingly even when its purchase price is essentially the same.
Key purpose of stamp taxes
Revenue stamps, also referred to as “documentary taxes,” are added to each deed and other relevant documents delineating real estate matters. The purpose behind it is to signify that all the associated payments have, indeed, been made following the transfer of the initial sales price.
Transfer tax vs. Conveyance tax vs. Stamp tax
To understand the real estate fee structure better, let’s highlight how transfer tax and conveyance tax differs from stamp tax in simple terms:
Real estate transfer tax
Transfer fee is the additional charging implied on the property selling process when the house title changes. Moreover, as mentioned earlier, the tax depends upon the location of a property. As for who is obliged to make this payment, that is typically decided between the buyer and the seller before the deeds get finalized.
The only scenario where a transfer tax doesn’t apply is when the title only changes as a result of inherited property.
On the other hand, conveyance tax is a specific amount based on the property’s sale price. It doesn’t matter how much you’ve already paid in terms of real estate transfer fees as a home seller or buyer. The law stipulates the tax has to be paid by either one of the parties before the closing.
Moreover, you can’t get around this tax, even if you inherit it from your family or someone gives it to you as a gift. That’s because the government will instead categorize the conveyance tax as gift tax or inheritance tax.
Stamp tax or excise tax is imposed on property deeds only after the transfer fees and conveyance tax has been paid in full. This ensures that the buyer and seller have made all the transactions included in the real estate process. Plus, the revenue generated is spent on their own well-being, seeing that the money is utilized to improve communal structures by the government.
In short, revenue stamps are a form of government tax placed on legal documents associated with real estate transfer payments. The responsibility to pay off the stamp tax is sorted out between the buyer and seller themselves before the closing of the deed.