Real Estate Transfer Taxes in California: Frequently Asked Questions

California home buyers typically encounter closing costs when buying a home. These are the various fees and charges that occur when a person buys a house using a mortgage loan. On average, they can add up to 2% to 5% of the home purchase price on average.

One of the closing costs that doesn’t get talked about very much is the real estate transfer tax. City, county and state governments typically charge a real estate transfer tax when someone purchases a home in California. As the name suggests, it’s literally a tax on the transfer of property from a buyer to the seller.

Below, we have addressed some of the most frequently asked questions relating to real estate transfer taxes in the state of California.

Note: The home purchase process can vary from one transaction to the next. So portions of this article might not apply to your situation. This information is intended for a general audience and does not constitute tax advice.

What are real estate transfer taxes?

A real estate transfer tax (RETT) is a tax imposed on the transfer of ownership of real property. In most California counties, the seller typically pays for the transfer tax. But this can be negotiated between both parties and specified within the contract.

RETTs are imposed by state and local governments in many parts of the United States, including California. Government agencies use these revenues to fund a variety of government programs, such as education, infrastructure, and affordable housing.

How much do they cost?

RETTs are typically calculated as a percentage of the selling price of the property. The specific rate can vary from one county to the next.

In California, the statewide real estate transfer tax rate is $1.10 per $1,000 of the selling price. So, for example, the RETT for a $500,000 home might come to around $550. The transfer tax for a $700,000 home in California would amount to roughly $770 … and so on.

In addition, many counties in California impose their own real estate transfer taxes, which can range from a few dollars to over $10 per $1,000 of the selling price.

To calculate the RETT for a home sale in California, you would need to multiply the selling price by the state RETT rate and any applicable county RETT rates. For example, if you are selling a property in Alameda County, California, for $500,000, the RETT would be calculated as follows:

• State RETT: $1.10 per $1,000 * $500,000 = $550
• Alameda County RETT: $12.00 per $1,000 * $500,000 = $6,000
• Total RETT: $550 + $6,000 = $6,550

Who pays real estate transfer taxes in California?

In California, the seller typically pays the real estate transfer tax (RETT). However, the buyer and seller can negotiate who will pay the tax in the purchase agreement. This is especially common in a buyer’s market, when buyers have more negotiating power.

The buyer and seller might also agree to split the cost of the RETT, or the buyer might agree to pay the tax in full. All of this will be stated in the purchase agreement.

It is important to note that RETTs are due within 30 days of the date of the transfer of ownership of the property. The buyer and seller can negotiate who will pay the RETT in the purchase agreement, but the buyer is ultimately responsible for paying the tax if the seller does not pay it.

Are there any exemptions from these taxes?

California does provide certain exemptions or exclusions from real estate transfer taxes. These exemptions can reduce or even eliminate the RETT in specific situations.

Some common exemptions include:

• Transfers Between Spouses or Registered Domestic Partners: When a property is transferred between spouses or registered domestic partners, it is typically exempt from the real estate transfer tax.
• Transfers to/from Revocable Living Trusts: Transfers of property to or from a revocable living trust are generally exempt from the transfer tax.
• Transfers Involving Inheritance: Transfers of property upon the death of an owner to their heirs or beneficiaries are often exempt from the tax. This is commonly referred to as a parent-child exclusion or grandparent-grandchild exclusion.
• Transfers in Family Farm Corporations: Certain transfers involving family farm corporations may be exempt.
• Transfers Involving Governmental Entities: Transfers of property between government entities may also be exempt.
• Transfers to Nonprofit Organizations: In some cases, property transfers to nonprofit organizations may be exempt.

Just note that these exemptions can vary based on local regulations, and additional exemptions or exclusions may apply in specific circumstances. To determine if you are eligible for an exemption from the RETT, consult with a tax professional or the California State Board of Equalization.

Are they rolled into my closing costs?

Yes, in California transfer taxes are typically rolled into closing costs and paid on closing day. The escrow company that handles your home sale will calculate the taxes and present them to you on your settlement statement or closing disclosure.

The escrow company will typically collect the transfer taxes from the buyer on closing day and then pay them to the appropriate government agencies.

Where to Learn More

If you have additional questions about real estate transfer taxes in the state of California, please refer to the following resources.

California State Board of Equalization (BOE): The BOE is responsible for administering California’s transfer tax laws. Their website has a wealth of information on the topic, including a comprehensive FAQ page, a tax rate calculator, and a list of additional resources.

California Department of Housing and Community Development (HCD): The HCD provides a variety of resources for home buyers, including a guide to buying a home in California. Their website also has a section on real estate transfer taxes, which includes information on the state and local tax rates.

California Association of Realtors (CAR): The CAR is a trade association that represents real estate agents and brokers in California. Their website has a number of articles and resources on real estate transfer taxes, including a buyer’s guide to closing costs.

Local government websites: Many local governments have information on their websites about real estate transfer taxes, including the specific tax rates in effect in their area. You can find this information by searching the website of the county or city where you are planning to buy a home.