Final Thoughts On Closing Costs
Closing costs are processing fees you pay to your lender when you close on your loan. Closing costs on a mortgage loan usually equal 3% 6% of your total loan balance. Appraisal fees, attorneys fees and inspection fees are examples of common closing costs.
The specific closing costs youll pay depend on the type of loan you have, your homes value and your states laws. Sellers may also need to pay for closing costs, depending on the sale agreement.
You might be able to save on your closing costs by negotiating with your lender. You may also want to ask your seller to pay a percentage of your closing costs or take a no-closing-cost loan. In addition to your funds, make sure you review everything you need to bring to closing.
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What Are Mortgage Transfer Taxes
Mortgage transfer taxes â often referred to as mortgage recording taxes â are fees imposed by state and local governments whenever you take out a new mortgage. This fee is often charged alongside real estate transfer taxes.
In a typical home sale, it is customary for the buyer to pay this fee, since they are the one taking out the mortgage. However this isn’t set in stone, and you can always negotiate who pays what in your sale.
Unlike real estate transfer taxes, mortgage transfer taxes are calculated as a percentage of the mortgage, instead of a percentage of the homeâs sale price.
You usually will pay a mortgage transfer tax any time you take out a loan on your home â for example, when refinancing our taking out a home equity loan â not only when taking out a mortgage to purchase a new home.
Refinancing To Pay Off Debts
As noted above, interest paid on mortgages is generally tax-deductible, while interest paid on other debts typically is not. So you can use a cash-out refinance to convert interest paid on credit cards and other non-deductible debts to tax-deductible interest by rolling it into your mortgage. Mortgage rates are typically lower than the rates charged on other types of interest as well.
Funds borrowed through a cash-out refinance and used to pay off other debts are considered a home equity loan for tax purposes, so they’re subject to the limits noted above. Single persons can deduct the interest paid on up to $50,000 borrowed for debt consolidation, while couples can go up to $100,000.
Are Transfer Taxes Deductible
Whether you buy or sell, the IRS doesn’t allow you to deduct transfer taxesâor any other taxes involved in the sale of a personal home. This includes other costs like the recording tax paid on each mortgage. However, transfer taxes in some areas are “deductible” from one another: the tax you pay to one level of government may reduce the tax you owe to another. For instance, the state of California counts transfer taxes that you pay to your county as credit against your state tax, resulting in a lower total tax rate.
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How Real Estate Transfer Taxes Differ From Other Taxes
Real estate transfer taxes are different from property taxes, estate taxes and gift taxes, although its easy to confuse them.
Property taxes, for one, are imposed on properties as a source of revenue for local governments, and are a recurring tax.
Estate taxes are paid when the assets of a deceased party, or the estate, are transferred to their heirs. Estate taxes are levied at the federal level if the estate is valued at over $11.58 million , and also at some state levels as an inheritance tax.
Gift taxes, on the other hand, are paid when a gift of any kind of property is given to another without repayment, provided the gift is valued over a certain threshold.
Gift tax and estate tax are typically imposed on the transfer of property, pursuant to estate planning or upon death in accordance with the will, explains Allen Popowitz, chair of the real estate practice at Brach Eichler, a law firm in Roseland, New Jersey. Transfer taxes are imposed on the actual transfer of the real estate, typically between a property owner and a third-party purchaser.
Put another way, estate and gift taxes are technically transfer taxes, but with different limitations and charges and unlike real estate transfer taxes, they are paid to the IRS, says Tania Bartolini, a real estate attorney based in Fort Lauderdale, Florida.
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Things You Need To Know About Transfer Taxes
Selling your home can be such a joy and sometimes even a relief. However, the process isn’t over when the buyer signs on the dotted line. The transfer taxes still must be processed. Taxes have a way of making people’s heads spin. Looking at the closing paperwork may leave you with more questions than answers. But, what are transfer taxes? What role do they play in the closing process?
Florida Documentary Stamp Tax
The State of Florida can assess certain taxes on both the transfer of real property and mortgages. Thus, a Florida home buyer must pay additional taxes when purchasing a home.
A number of these taxes stem from Floridas documentary stamp tax. Below is what the Florida Department of Revenue states the documentary stamp tax is:
Documentary stamp tax is an excise tax imposed on certain documents executed, delivered, or recorded in Florida. The most common examples are:
- documents that transfer an interest in Florida real property, such as deeds and
Tax is paid to the Clerk of Court when the document is recorded. When a taxable document is not recorded, the tax must be paid directly to the Florida Department of Revenue.
Deeds and other documents that transfer an interest in Florida real property are subject to documentary stamp tax.
So what does all this mean? Basically, Florida taxes are administered to cover the variety of recorded documentation needed when purchasing a home.
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Who Pays For Real Estate Transfer Taxes
In many places, the seller is the one obligated to pay real estate transfer taxes, but the rules vary.
In some states, like Pennsylvania, this expense is typically split between the buyer and seller, Popowitz says. In other states, and depending upon the strength of the real estate market, the tax is sometimes paid by the buyer.
Of course, the seller and buyer have the option to negotiate who is responsible for paying real estate transfer taxes and stipulate this in the real estate contract.
How Much Are Real Estate Transfer Taxes
The cost of the real estate transfer tax differs from state to state, with the amount based on the price of the property being transferred.
They can be as low as a flat rate of $2, as it is charged in Arizona, or a percentage of the sales price that can exceed 2 percent, according to Paul Joseph, a CPA and attorney in Williamston, Michigan.
Consider what youll pay in these different states based on a $500,000 home sale, Bartolini says:
- Colorado $50
- New York $2,000
- Florida $3,500
Real estate transfer taxes are considered part of the closing costs in a home sale and are due at the closing. Transfer taxes are not tax-deductible against your income tax, but will afford a tax benefit to a purchaser or seller by increasing the basis of the property and thereby reducing the capital gains tax, if any, at time of sale, Metalios notes.
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How Much Are Closing Costs For A Buyer
Not every buyer will pay the same amount in closing costs. Some costs are lender requirements, some are government requirements and others may be optional will vary depending on the situation. What youll need to pay for will depend on where you live, your specific lender and what type of loan you take.
At least 3 days before you attend your closing meeting, your lender will give you a document called your Closing Disclosure. This will list out every closing cost you need to cover and how much you owe. Here are some of the most common closing costs you might see on your disclosure.
How Much Are Transfer Taxes In Florida
In Florida, transfer taxes aren’t necessarily charged on every transfer of property. For instance, let’s say you’re adding a spouse to the deed as an owner â there won’t be any need for Doc Stamps in that case.
Additionally, if you’re transferring property between two people and the deed is simply being changed, even if a spouse isn’t involved, you won’t have to pay the transfer tax. Certain actions, like adding an executor or adding an owner tothe deed, wouldn’t be considered a transfer, so no transfer tax would be assessed.
If an actual transfer takes place, such as during a sale, then transfer taxes will be assessed. Those taxes are paid to individual counties, which then send them on to the State Department of Revenue. Florida transfer taxes are the same in every countywith the exception of Miami-Dade.
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Are Deed Transfer Taxes Deductible
The short answer is no, real estate transfer taxes are not tax-deductible.
Unlike property taxes and mortgage interest, you canât reduce your tax bill by deducting transfer tax payments from your income.
However, you might be able to use transfer tax to save on future tax bills.
If you paid transfer taxes when buying your home, you can include them when calculating the total amount you paid for your home .
When you sell that home, you may have to pay capital gains taxes on the difference between the price you sold for, and the price you bought for. By calculating transfer taxes into the original purchase price, that difference becomes smaller.
Note that you won’t be able to take advantage of this if:
- You’re selling your primary residence, where you’d been living for at least two of the previous five years
- You’re making less than $250,000 on your home’s sale if you’re single, or $500,000 if you’re married
For example, say you bought a house for $300,000 and then sold it $350,000 the next year. If you paid $5,000 in transfer taxes when you purchased the home, you could deduct that along with the other costs you incurred associated with the home to reduce the taxes you owe on the sale. Instead of paying taxes on a $50,000 gain, you would only pay taxes on a $45,000 gain.
If you’re selling a rental or investment property you can also likely deduct the costs of transfer taxes in a similar fashion.
Intangible Tax Class C On Real Estate Mortgages
This tax must be paid before the Clerk and Comptroller can accept any mortgage for record, and applies only to mortgages, agreements or contracts for deed, deeds of trust or other liens pertaining to real property.
- Rate of 2 mills per dollar on the amount of the mortgage or the amount financed
- Amount is computed to the nearest cent
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Who Pays Closing Costs In Florida
Neither party is responsible for 100% of the closing costs in Florida, which includes fees, taxes, insurance costs and more. The buyer typically pays between 3% to 4% of the home loans value and is responsible for the bulk of the fees and taxes. The seller usually pays between 5% to 10% of the homes sale price. Closing costs also vary among counties.
For the buyer
Who pays for title insurance in Florida?
Title insurance works a little differently in Florida. In Sarasota County, Collier County, Miami-Dade County and Broward County, the buyer pays for title insurance and chooses the title company. In all other counties, its the sellers responsibility.
Calculating The Florida Transfer Tax
According to the Documentary Stamp Tax, when transferring a property deed the Florida Transfer Tax would be calculated by taking70 cents for each $100or fractional part. ) Please note, that the tax rate of .70 cents is applicable in all counties except Miami-Dade.
Furthermore, a promissory note is the document that details the amount owed, interest rate, and the terms of your promise to repay. The state assesses a tax of $.35 cents per $100 of the face value of any promissory note. )
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Florida Documentary Stamp Taxes And Recording Costs For Deeds
People who transfer real estate by deed must pay a transfer fee. This fee is charged by the recording offices in most counties. In Florida, this fee is called the Florida documentary stamp tax.
The documentary stamp tax is broad and could apply to any transfer of an interest in property. Specific examples include:
- Warranty deeds
- Contracts for timber, gas, oil, or mineral rights
- Contracts or agreements for deed
- Assignments of contract or agreement for deed
- Assignments of leasehold interest
- Assignments of beneficial interest in a trust
- Deeds in lieu of foreclosure
In all counties except Miami-Dade County, the Florida documentary stamp tax rate is $0.70 per $100 paid for the property. The documentary stamp tax on a $150,000 home would equal $1,050.00. In Miami-Dade County, the tax rate is $0.60 per $100 for single family residences, with a $0.45 surtax on each $100 added for other types of property.
The documentary stamp tax is usually paid to the county clerk or recorder when the deed is recorded. But if the document is recorded after the 20th day of the month following the date that the document is delivered, it must be paid directly to the Florida Department of Revenue.
Penalties and interest can apply to late payment of the documentary stamp tax. The penalty 10 percent of the tax owed per month, up to a maximum of 50 percent. Interest is charged based on formulas that are updated in the first half of each year.
Purchasing A Home In Florida Florida Refinance
70 cents per $100 Documentary Stamps/State Tax on the Deed 35 cents per $100 Documentary Stamps/State Tax on the mortgage
20 cents per $100 Intangible Tax/County Tax on the mortgage
$10 first page, Recording charges $8.50 each additional page
Owner’s mortgage policy of Title Insurance:Up to 100,000 $5.75 per 1,000Up to 1,000,000 $575 for first 100,000 plus $5.00 per 1,000 thereafterUp to 5,000,000 $5,075 for first 1,000,000 plus $2.50 per 1,000 thereafter
$300,000 sales price, $270,000 loan amountDoc Stamps on Deed= $2,100Doc Stamps on Mortgage= $945= $1,575)Record 12 pages= $103.50
Sample grid for Florida home purchase taxes & Title Insurance :
* To qualify for the prior policy discount, Borrower must provide a copy of their previous Title Insurance Policy, and policy must be less than 3 yrs old for the discount to apply to a purchase. The discount amount is based upon the amount of the prior policy. The cost of a simultaneously issued Lenders policy in a purchase transaction is $150.**County stamps vary slightly amongst the Counties, this grid is based on Broward County.
Refinance Property taxes are due in November. There is a doc stamp of $3.50 per thousand and an intangible tax of $2.50 per thousand required on every refinance in Florida. There are not any additional transfer taxes for cash out, just use the new loan amount to calculate the doc stamps and intangible tax. See refinance mistakes to avoid..
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Overview Of Florida Housing Market
While some areas of Florida boast affordable housing markets, homeownership in Florida comes with some risk. The state has some of the highest foreclosure rates and homeowners insurance costs in the country. However, Florida’s 0.83% average effective property tax rate is less than the national mark.
Who Pays Closing Costs
Both buyers and sellers pay closing costs. However, the buyer usually pays most of them. You can negotiate with a seller to help cover closing costs, which are called seller concessions. Seller concessions can be extremely helpful if you think youll have trouble coming up with the money you need to close. There are limits on the amount that sellers can offer toward closing costs. Sellers can only contribute up to a certain percentage of your mortgage value, which varies by loan type, occupancy and down payment. Weve broken this down below:
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Costs To Expect When Buying A Home In Florida
One of the costs that youll likely incur during the home-buying process is paying for a home inspection. While technically not mandatory, its a crucial step before the final OK on a real estate contract. The burden of discovering any home defects usually lies on the homebuyer, even with an extensive sellers disclosure. It makes sense: Youll be living in the home, so its your responsibility to ensure that you know as much as you can prior to buying the home.
Inspections tend to range from $250 to $375 in Florida, depending on the company you choose and the size of the home to be inspected. If you wish to add popular additions such as termite, mold, radon or wind mitigation, you can usually arrange it through your primary home inspector, if he or she offers the service. While not usually required, its helpful for any homeowners with allergies or other concerns to know the full scope of the property prior to closing on the home.
Some of the largest upfront fees in the home-buying process are during the closing process. Closing costs account for a number of mortgage lender fees , title company fees, and a number of other administrative charges that are collected by various entities. These fees will vary depending on lender and the location of the property youve purchased.