A real estate excise tax is a tax on the transfer of real property, charged as a percentage of the full selling price and paid at closing. The term is most closely tied to Washington state, but roughly 36 states and the District of Columbia levy the same kind of tax under other names: transfer tax, documentary stamp tax, conveyance fee, or recordation tax. Combined state and local rates run from fractions of a percent to more than 5% in some high-cost jurisdictions. Whether you owe it, how much, and how it affects your federal return depends on where the property sits, who agreed to pay, and how you use the property.
What Triggers the Tax
The tax applies whenever ownership of real property changes hands for something of value. That “value” is broader than cash. It includes assumed debt, exchanged property, and any other consideration the buyer provides. And it applies to the full selling price, not just your equity or profit. Sell a home for $400,000 with the buyer assuming your $200,000 mortgage, and the tax is calculated on the full $400,000.
About 14 states impose no transfer tax at all, so the first question is whether your state charges one. If it does, your county recorder’s office or state revenue department publishes the rates and forms.
How Rates Are Calculated
Rates vary sharply by location. Some states use a single flat rate against the entire sale price. Others use a graduated structure that works like federal income tax brackets: only the portion of the sale price within each bracket is taxed at that bracket’s rate. A few jurisdictions express the rate as a dollar amount per $500 or per $1,000 of consideration rather than a straight percentage, which makes side-by-side comparisons awkward until you convert.
Washington state, where the term REET originates, uses a graduated structure with rates that start at 1.1% on the lowest portion of the sale price and climb to 3% on amounts above the highest threshold. The bracket boundaries adjust periodically for inflation.
Local governments in many states pile their own surcharges on top of the state rate. Combined state and local transfer taxes can reach 4% to 5% of the sale price in some places. Other states cap the local add-on or bar it entirely. Two identical properties in different cities within the same state can generate meaningfully different tax bills, so check both levels before estimating closing costs.
Who Owes It: Buyer or Seller
In most states, the seller is legally responsible for the transfer tax. Some states put the obligation on the buyer, and others split it. Local custom often overrides the statutory default, and the purchase agreement usually controls who actually writes the check regardless of which party the law technically names.
Even where the seller is legally on the hook, the buyer has real exposure. Unpaid transfer tax generally becomes a lien against the property itself, and that lien follows the property, not the seller. County recording offices reinforce this by refusing to record a new deed until the tax is paid. Closing agents and title companies handle the routing as part of settlement, which is why most buyers and sellers never think about it directly.
Common Exemptions
Not every ownership change owes the tax. Transfers without a real exchange of value are widely exempt:
- Gifts of property with no payment in return
- Property passing by will or trust after death
- Transfers between spouses under a divorce decree or settlement
- Deeds in lieu of foreclosure and other transfers to a lender on a defaulted loan
- Conveyances to or from a government entity
Business reorganizations often qualify too. Moving property from your own name into an LLC you wholly own generally passes because the proportional ownership doesn’t change. If the ownership percentages shift even slightly, the exemption falls away. Transfers between a parent and a wholly owned subsidiary, and mergers accomplished through stock exchanges, often qualify.
Exemptions aren’t automatic. You file a supplemental affidavit or statement explaining why the transfer isn’t taxable. The form differs by jurisdiction, but the point is the same: the state wants a paper trail confirming the transfer was genuinely non-taxable rather than a disguised sale.
Controlling Interest Transfers
Selling a building outright isn’t the only way to trigger the tax. States that tax controlling interest transfers treat the sale of a majority stake in a company that owns real estate as a sale of the underlying real estate. The typical threshold is 50% or more of the voting power, capital, or beneficial interest in the entity. Cross that line in a single transaction or a series of related ones, and the tax applies to the value of the real property the entity holds.
This rule closes an obvious workaround: wrap the building in an LLC, then sell the LLC. Some states track ownership changes over a multi-year window, so spreading sales across buyers and time doesn’t necessarily avoid the tax.
How It Affects Your Federal Taxes
Transfer taxes on a personal home are not deductible as real estate taxes on your federal return. The IRS is explicit that transfer taxes and stamp taxes on the sale of a personal residence cannot be deducted as itemized taxes.1Internal Revenue Service. Publication 530 (2025), Tax Information for Homeowners The money isn’t lost for tax purposes, though. How it’s treated depends on your role and how you use the property.
If you’re the buyer and you pay the transfer tax, either because state law requires it or because your contract does, the tax gets added to your cost basis in the property. A higher basis means less taxable gain when you eventually sell.2Internal Revenue Service. Publication 551, Basis of Assets If you’re the seller, transfer taxes you pay count as selling expenses that reduce your amount realized on the sale, which also reduces your taxable gain.3Internal Revenue Service. 2025 Publication 523
The rules change when the property is used in a trade or business or held for investment. Real estate investors and dealers can deduct transfer taxes under Section 164 as a cost of their business or income-producing activity.4eCFR. 26 CFR 1.164-1 — Deduction for Taxes The same $10,000 transfer tax that disappears into your basis on a personal home sale can be a direct deduction on an investment property.
Filing, Deadlines, and Penalties
Filing centers on a tax affidavit or return that documents the transaction: legal names and addresses of both parties, the legal description of the property, the parcel identification number, and the full selling price. You sign under penalty of perjury, so accuracy matters. Don’t estimate a number you can look up.
In most states, you submit the completed affidavit with the deed and full tax payment to the county treasurer or recorder where the property is located. Accepted payment methods vary but commonly include certified funds like cashier’s checks and, increasingly, electronic transfers. Once payment clears, the office stamps or annotates both the affidavit and the deed, and that stamp is what authorizes the county to record the ownership change.
Transfer tax is due on the date of sale in most jurisdictions. Not the recording date, not 30 days later, the actual closing date. Miss the deadline and penalties and interest escalate quickly. A common pattern: an initial penalty of about 5% after the first month, 10% after two months, and 20% after three, with interest accruing monthly on top. Sending your paperwork to the wrong office (the state revenue department instead of the county treasurer, or the reverse) doesn’t stop the clock. This is one of the strongest practical reasons to use a title company or closing agent.
Refunds for Overpayment
If you overpaid the tax or paid it on a transaction that turned out to be exempt, you can request a refund. The deadline varies by state but is commonly four years from the date of sale. File the refund request with whichever office received the original payment, along with documentation supporting the claim.
Refund-eligible situations include double payment, computational errors that led to overpayment, and transactions that qualified for an exemption but were taxed anyway. If the county already forwarded your payment to the state treasury, expect a longer wait: the county verifies the claim and then forwards it to the state department for final determination. If the county denies your request, states generally allow an appeal to the state revenue department within a set window, often 30 days.