What Is the REET Tax and How Is It Calculated?
Gain a clear understanding of the Real Estate Excise Tax, a key financial component of property sales, and the process for proper documentation.
The Real Estate Excise Tax (REET) is a tax on the sale of real property. While rules and rates vary by state, this guide uses Washington’s system as an example. In Washington, REET is a seller’s tax calculated on the property’s selling price. The tax must be paid before the deed, the legal document transferring the property, can be officially recorded.
Calculating the REET Amount
The total selling price is the basis for the REET calculation. This includes cash paid, the value of any other assets exchanged, and any debt the buyer assumes. Washington’s tax uses a graduated rate structure, meaning different portions of the selling price are taxed at progressively higher rates.
The state tax rates are:
1.1% on the portion of the selling price less than or equal to $525,000.
1.28% on the portion of the selling price from $525,000.01 to $1,525,000.
2.75% on the portion of the selling price from $1,525,000.01 to $3,025,000.
3.0% on the portion of the selling price greater than $3,025,000.
For a property sold for $600,000, the first $525,000 is taxed at 1.1% ($5,775), and the remaining $75,000 is taxed at 1.28% ($960), for a total state REET of $6,735. Designated agricultural land and timberland are excluded from this structure and are subject to a flat state REET rate of 1.28%.
In addition to the state tax, local governments may impose their own REET. For example, a 0.50% county tax on a $600,000 sale would add $3,000 to the bill. A $5.00 state technology fee also applies to all transactions where tax is due, bringing the total combined REET in this example to $9,740.
Transactions Exempt from REET
Certain real property transfers are exempt from the Real Estate Excise Tax. One exemption is for genuine gifts where no payment is exchanged. However, if the recipient takes over any underlying debt on the property, that debt amount may be subject to REET.
Transfers resulting from an inheritance, either through a will or state intestacy laws, are also exempt. Claiming this exemption requires documentation confirming the transfer is due to death, such as a Lack of Probate Affidavit and a death certificate.
Other standard exemptions include property transfers resulting from a divorce decree or settlement. Transfers by a trustee during bankruptcy or foreclosure proceedings are also exempt from REET.
Even for exempt transactions, a REET Affidavit must be completed and filed. The affidavit must cite the specific administrative code for the exemption being claimed. A total of $10.00 is due for exempt transactions, which covers a $5.00 technology fee and a $5.00 processing fee.
Required Information and Affidavit Preparation
To prepare the Real Estate Excise Tax Affidavit, you must gather information for all sellers and buyers, including their full legal names and mailing addresses. You will also need the property’s precise legal description from the existing deed and its county-assigned parcel number.
Transactional details are also required, such as the sale date and total selling price. If personal property like furniture is included in the sale, its value must be listed separately so it can be deducted from the taxable amount.
All information must be entered accurately on the affidavit. If claiming a tax exemption, you must enter the corresponding Washington Administrative Code (WAC) number. Both the seller and buyer, or their agents, must sign the affidavit under penalty of perjury.
Filing the Affidavit and Making Payment
The completed and signed affidavit, along with the property deed, must be filed with the treasurer’s or auditor’s office in the county where the property is located. This must be done within one month of the sale date to avoid penalties.
Payment of the calculated REET is due at the time of filing. For exempt transactions, only the required processing fees are due.
The treasurer’s office will stamp the affidavit upon receiving it and the full payment. This stamp is proof that the tax obligation is met. The stamped affidavit allows the deed to be recorded by the county auditor, which officially transfers legal ownership to the buyer.