Beginning January 1, 2017, Philadelphia’s real estate transfer tax will increase from 3 percent to 3.1 percent. That’s in addition to the Pennsylvania realty transfer tax of 1 percent, for a total of 4.1 percent.
Have you been considering a sale of property in Philadelphia? If so, you may want to sell before 2017 in order to avoid a tax hike on the local realty transfer tax. Beginning January 1, 2017, Philadelphia’s real estate transfer tax will increase from 3 percent to 3.1 percent. The Philadelphia realty transfer tax is in addition to the Pennsylvania realty transfer tax of 1 percent. Consequently, a sale of property in Philadelphia will now be subject to a total realty transfer tax rate of 4.1percent.
The realty transfer tax applies to the transfer of ownership of real property. This not only includes a sale as reflected in a deed, but also includes a long-term lease of 30 years or more, easements, life estates and transfers of 90 percent or more of the interests in a real estate company. There are exceptions for transfers between family members, such as husband and wife, parent and child, and siblings. Property transferred under a will is also exempt, but if property is purchased from an estate, it is not exempt.
The tax is typically a percentage of the price represented in the transfer documentation. However, if the transfer documentation does not reflect an arm’s length price, the tax rate is a percentage of the property’s actual worth, which is computed by adjusting the assessed value to the market value.
Although the buyer and seller customarily split the cost of the transfer tax in Pennsylvania, the taxing authority has the right to collect 100 percent of the tax from either party. Thus, buyers and sellers agree to pay the tax in full at the closing of the sale, even though timely payment can be made within 30 days of recording the deed. The parties may be responsible for penalties of up to 50 percent of the tax due if they misrepresent or fail to record the transaction.
Most localities in Pennsylvania impose a 1 percent real estate transfer tax in addition to Pennsylvania’s 1 percent tax rate, for a total of 2 percent, but some jurisdictions have a higher rate, including the city of Pittsburgh at 3 percent, Mt. Lebanon at 1.5 percent and Upper St. Clair Township at 1.5 percent. Anyone who is considering transferring property in Philadelphia – through sale, long-term lease, easement, life estate or sale of 90 percent or more of the interest in a real estate company – may want to consider taking action before the end of the year to avoid the 0.1 percent increase.