Back to: ACCOUNTING & TAXATION
What is a Transfer Tax?
A transfer tax refers to any kind of tax which is imposed on ownership transfer or title transfer to property from an entity to another. In some states, a transfer tax is seen as an excise tax.
A Little More on Transfer Tax
Transfer tax can be levied at either of three levels namely the federal, state, and the local levels. This is determined by the type of property being transferred.
State, county, and municipal authorities impose a transfer tax on real estate in order to transfer real property within the jurisdiction. Most times, the local governments tax the transfer of certificates, legal deeds and property titles from the seller to the buyer. The property value, as well as, property classification determine the tax. The seller is responsible for the transfer tax on real estate even though it isn’t unusual for an agreement to be reached, involving the buyer paying this tax. Certain states request that the buyer settle the tax in a case where the seller either doesn’t pay it or is exempt from paying it.
There are five states that do not impose the real estate transfer tax and they include the following: Missouri, North Dakota, Wyoming, Mississippi, and New Mexico.
The death tax is an estate tax, gift tax, and generation-skipping transfer tax that are imposed on a property once the owner dies. The federal government, by means of the Internal Revenue Service (IRS) places a tax on the property’s value through death taxes. The federal estate tax applies to property transfer at death. The estate tax is an indirect tax on property transfer because of death as against a tax imposed on the property itself. This tax applies to the gross estate of a decedent, which usually comprises all of the decedent’s financial, as well as, real assets. Any estate value worth over $11.2 million known as the inflation-indexed amount, as of 2018, has a 40 percent top rate tax.
It is only while a person is living that the gift tax is applied to transfers. The federal gift tax which is 40% applies to the gift giver for sums larger than $15,000. This tax does not apply to the recipient.
An extra tax on a transfer of property which skips a generation is known as the generation-skipping transfer (GST) tax. This tax was implemented in order to prevent families from evading the estate tax for one or more generations by either making gifts or bequests directly to either grandchildren or great-grandchildren. The generation-skipping transfer tax forces a second tax layer on wealth transfers to recipients who are younger than the donor by two generations or more.
References for Transfer Tax
Academic Research on Transfer Tax
A knowledge-based system for individual income and transfer tax planning, Michaelsen, R. H. (1982).
Timing under a unified wealth transfer tax, Sims, T. S. (1984). The University of Chicago Law Review, 51(1), 34-90.
Valuing Close Corporations for Federal Wealth Transfer Tax Rates: A Statutory Solution to the Disappearing Wealth Syndrome, Fellows, M. L., & Painter, W. H. (1977). Stan. L. Rev., 30, 895.
Why the Generation-Skipping Transfer Tax Sparked Perpetual Trusts, Fellows, M. L. (2005). Cardozo L. Rev., 27, 2511.
Use of Judicial Doctrines in Resolving Transfer Tax Controversies, Soled, J. A. (2000). BCL Rev., 42, 587.
A Comment on Transfer Tax Reform, Stephan III, P. B. (1986). Virginia Law Review, 1471-1496.
Transfer Tax Avoidance: The Impact of Perpetuities Restrictions Before and After Generation-Skipping Taxation, Bloom, I. M. (1980). Alb. L. Rev., 45, 261.
Property transfer tax and stamp duty, Bahl, R. (2004). International Center for Public Policy, Andrew Young School of Policy Studies, Georgia State University.
Further Observations on Transfer Tax Restructuring: A Practitioner’s Perspective, Aucutt, R. D. (1988). Tax Law., 42, 343.
Report on Transfer Tax Restructuring, Holdsworth, K. J., Aucutt, R. D., Benjamin Jr, E. B., Bergen, K. W., & Lewis, J. B. (1988). Akron Tax Journal, 5(1), 7.
Family Limited Partnerships: Non-Transfer Tax Benefits, Eastland, S. S. (1993). Prob. & Prop., 7, 10.