How to Calculate Real Estate Excise Tax

Real estate excise tax (REET) is a one-time tax on the sale of property, levied on the transfer of ownership from a seller to a buyer. The funds collected support public services like schools and road maintenance. Unlike annual property taxes, REET is charged only during a real estate transaction. In Washington state, the seller is responsible for paying the REET, but the buyer can be held liable if the tax goes unpaid.

Information Needed for the Calculation

To calculate the excise tax, you must first determine the property’s total taxable selling price. This figure represents the total consideration paid, including cash, the value of any exchanged property, and any debt the buyer assumes from the seller. For instance, if a buyer pays $400,000 in cash and takes over a $100,000 mortgage, the taxable selling price is $500,000.

The other required information is the specific excise tax rate for the property’s location. Rates are a combination of state, county, and sometimes city-level taxes. You can find the correct rates and the necessary affidavit forms by consulting the websites for your state’s Department of Revenue and the local county treasurer or assessor’s office.

You will discover that tax structures can be either a flat rate or a graduated rate system. A flat rate is a single percentage applied to the entire selling price. In contrast, a graduated, or tiered, system applies different rates to different portions of the selling price. A lower rate might apply to the first portion of the sale price, with a higher rate applying to the amount that exceeds that threshold.

Step-by-Step Calculation Guide

The basic formula for calculating the excise tax is to multiply the taxable selling price by the applicable tax rate. This determines the total tax due on the transaction.

For a property located in an area with a flat tax rate, the calculation is a simple multiplication. For example, real property classified as “agricultural land” or “timberland” is subject to a flat state rate of 1.28%.

Calculating the tax in a jurisdiction with a graduated rate structure requires more steps. Washington state uses a tiered system for its portion of the tax. For example, a sale would be taxed at 1.10% on the price up to $525,000 and 1.28% on the portion of the price from $525,000.01 to $1,525,000.

To perform this calculation, you first address the state’s graduated portion. The first $525,000 is taxed at 1.10%, resulting in $5,775 ($525,000 x 0.0110). The remaining $75,000 of the selling price falls into the second tier and is taxed at 1.28%, which equals $960 ($75,000 x 0.0128). Then, assuming a 0.25% local rate, you calculate the local portion by applying it to the entire $600,000 selling price, which amounts to $1,500 ($600,000 x 0.0025). The total excise tax is the sum of these amounts: $5,775 + $960 + $1,500 = $8,235.

Completing the Excise Tax Affidavit

After calculating the tax, the sale must be documented on a Real Estate Excise Tax Affidavit. This form is a sworn statement reporting the sale details and tax liability to the local government. The county uses this information to verify the payment before recording the new deed.

The affidavit requires specific information about the transaction, including:

• Full names and addresses of the seller (grantor) and buyer (grantee)
• The property’s legal description and tax parcel number
• The date of the sale
• The type of document being recorded (e.g., warranty deed)
• The taxable selling price
• The final calculated excise tax amount

Submitting the Form and Paying the Tax

Submitting the completed affidavit and paying the tax is the final step. In most property sales, this process is managed by the escrow or closing agent. The agent ensures the paperwork is filed and the tax is paid as part of the closing procedures.

The excise tax is due at the time of sale, and penalties can be assessed if it is not paid within one month. The closing agent collects the funds from the seller at closing to cover the tax liability. A small state technology fee is also applied to each transaction.

After the county treasurer’s office receives the affidavit and full payment, they stamp the form as paid. This stamp confirms the tax obligation has been met. The stamped affidavit allows the new deed to be submitted to the county auditor for recording, which legally transfers the property title to the new owner.