Commonly, fees are levied on all land purchases. They could be realtor commission, land transfer tax, and the appraisal fee. The less known fees like land transfer tax are charged after the land has been transferred to the buyer. Unlike others, land transfer taxes are strange in certain localities; only a handful of states have implemented them. To get you acquainted with it, Nicholas Kyriacopoulos shares a few details of the land transfer tax you really would want to know.

What is a land transfer tax?

In most states, the land transfer tax is known as a property transfer tax. It is a tax imposed on all land transfers within a province. Some municipalities also impose a land transfer tax different from the one imposed by the provincial authority. What this means is that you can be levied with two land transfer taxes; one by the province and another by the municipality. This tax, therefore, becomes a means by which the authorities generate revenue.

Who pays a land transfer tax?

According to Nicholas Kyriacopoulos land transfer taxes are not paid by the seller of the land. Although, buyers are under obligation to fulfill the tax, certain conditions allow refunds to be made to a few of them. The Canadian province of Ontario allows first-time homebuyers to request a deduction of a part or the entirety of the land transfer tax.

Tax exemptions are also extended to land transfers within a family cycle (between brothers, sisters, a father, and a mother) in some provinces. And under specific conditions, an exemption is granted to partners ready to divorce. Furthermore, a handful of provinces and municipalities have other separate conditions needed to qualify for an exemption. Montreal, as an instance, in a bid to encourage residency within the suburbs, qualifies residential homebuyers with at least a child under the age of 18 to a full refund of the land transfer tax.

How much is the land transfer tax?

The land transfer tax rate is determined by each province and municipality. On account of that, the value of the tax will likely be different in various provinces. However, provided the rate, having an idea of the value of the tax is easily given that the fair market value of land determines its transfer tax. Generally, they are between 1% to 5% of the value of the land.

How can a land transfer tax be paid?

The land transfer tax is a one-time payment required after you've obtained possession of your land. Once an invoice is sent to you, immediate payment is to be made. Land transfer taxes are not paid in installments; it is to be paid in full, and they are usually added to the closing cost.

Bottom Line

Per Mr. Kyriacopoulos’s recommendations to ensure that you are capable of purchasing a property, you should examine all fees charged on such property. The land transfer tax, commonly overlooked by some land buyers, can be a significant amount in some localities. As such, expect it to have a weighty influence on your overall purchase expenditure.