Real Estate Transfer Taxes

  

Tennessee law provides that when the transfer of realty occurs, either by deed, decree, partition deed, or other instrument that evidences the transfer of any interest in real estate, a tax is to be paid for the privilege of having the same recorded. The tax to be paid for the transfer is based on the consideration for the transfer, or the value of the property, whichever is greater. For every $100.00 of property value, $.37 will be paid.

In order to determine how much is to be paid in transfer taxes, also known as a recordation tax, divide the amount of the consideration given for the property or the value of the property (again whichever is greater) by $100.00. Then, multiply your answer by $.37.

*If you'd like a shortcut, just multiply your value amount by .0037.

Example 1: You sell your house for $500,000.00.

In this instance, the consideration given for your house is $500,000.00. Dividing $500,000.00 by $100.00 gives you an answer of $5,000.00. Then multiplying $5,000.00 by $.37 gives you a final total of $1,850.00. This means that on the sale of a house valued at $500,000.00 the transfer taxes, or recordation tax, will be $1,850.00.

Example 2: Your rich uncle gives you a warranty deed to farmland valued at $2,000,000.00.

Here, you didn't pay your uncle anything, he gifted you a warranty deed to property valued at $2,000,000.00. This means that the value of the property ($2,000,000.00) is greater than the consideration provided for the transfer () and is the amount that the recordation tax should be based on.

$2,000,000.00 / $100.00 = $20,000.00

$20,000 * $.37 = $7,400.00

Therefore, the amount of transfer taxes to be paid for the recordation of the deed is $7,400.00.

Of course, like most areas of law, there are numerous exceptions that influence when transfer taxes do not have to be paid, including, but not limited to, the following:

                  • Deeds creating or dissolving a tenancy by the entirety;

Deeds or decrees settling property rights of divorcing parties;

Transfers pursuant to a testamentary devise;

Divisions in kind by Tenants in common;

Transfers to a revocable trust create by the transferor or their spouse; and,

Transfers from a revocable trust back to the same transferor or their spouse

Tennessee law provides that this tax is to be paid by the grantee or transferee of the interest in real estate as shown on the instrument evidencing the transfer of the interest, and is to be collected by the register of the county when offered for recordation. However, in a contractual arrangement, the parties are free to negotiate the terms therein and the payment of recordation taxes can be negotiated to the seller side of the transaction.

Additionally, it is important to remember that the recordation tax or transfer tax is based on the value of the real property. For instance, in example 1 the house was sold for $500,000. If, however, the house was to be sold fully furnished, included a boat, a golf cart and a backhoe, then the consideration provided of $500,000.00 isn't representative of the value of the real property being transferred and the taxable amount should be reduced.

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Thursday, 17 June 2021