Pennsylvania Real Estate Transfer Tax Traps
Know when and for what situations Real Estate Transfer Tax is payable and how to avoid costly penalties.
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By Williamson, Friedberg & Jones LLC | March 29, 2014
Pennsylvania has a 2% realty transfer tax that is generally payable upon the recording of a deed. However, the realty transfer tax applies in several other situations, which can create a trap for the unwary real estate buyer or seller.
In addition to typical sales situations, Real Estate transfer tax is also payable on other documents, such as leases and occupancy agreements, which extend for a period of 30 years or more. Furthermore, when determining the length of the lease for tax purposes, it is assumed that all extensions are exercised. For example, a 15 year lease with three five-year extension options can be subject to the realty transfer tax.
In addition, an easement can be considered an occupancy agreement, also triggering realty transfer tax in the same manner as a lease. This is true also for an installment sale agreements that extend over 30 years.
Another tax trap involves assignments of an agreement of sale from the initial buyer to an assignee, which is considered a "transfer" by the Pennsylvania Department of Revenue. This can trigger a second realty transfer tax. It is also important to keep in mind that although the realty transfer tax rate is 2% within Pottsville, the realty transfer tax rate is higher in some other cities and municipalities.
In addition to the tax itself, if a Declaration of the "transfer" is not recorded and the tax is not paid within 1 month, a penalty of 5% per month is also payable, up to a maximum of 50%.
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