What Is the Transfer Tax Rate in California?
Demystify California's transfer tax. Understand its role and implications for your real estate transactions.
Transfer tax is a fee imposed on the transfer of real property ownership from one party to another. It serves as a revenue source for state and local governments, often funding public services like education and infrastructure.
Understanding California Transfer Tax
In California, this tax is imposed at both county and, in many cases, city levels, based on the property’s sale price or value. The revenue generated from these taxes helps fund various government programs.
The seller typically pays the transfer tax in California. The tax is generally paid at the close of escrow, when the ownership transfer document, such as a Grant Deed, is recorded with the County Recorder’s office.
State and Local Transfer Tax Rates
California imposes a statewide documentary transfer tax rate of $1.10 per $1,000 of the selling price, which can also be expressed as $0.55 per $500 of the property’s value. This rate is consistent across all counties in California. For instance, if a property sells for $500,000, the statewide transfer tax would be $550.
Beyond the statewide rate, many cities and counties in California impose their own additional transfer taxes, which can vary significantly. Some cities, particularly in high-value markets, may have tiered transfer tax rates that increase with the property’s sale price. To determine the exact transfer tax for a specific location, it is necessary to check the local county recorder’s office or city hall websites.
For example, consider a hypothetical property sold for $750,000 in a city that imposes an additional city transfer tax. The county transfer tax would be calculated as $1.10 per $1,000, which amounts to $825 for a $750,000 sale. If this city has a municipal transfer tax of $4.50 per $1,000, that would add $3,375 to the total. In this scenario, the combined state and local transfer tax would be $4,200 ($825 + $3,375).
Exemptions from Transfer Tax
California law provides several scenarios where real property transfers may be exempt from transfer tax. These exemptions generally apply when there is no actual change in beneficial ownership or when the transfer involves certain family relationships.
Common exemptions include transfers between spouses or registered domestic partners, which typically do not incur transfer tax. Similarly, transfers of property into or out of a revocable living trust are often exempt, provided there is no change in the proportional ownership interest. Transfers occurring upon the death of an owner to their heirs or beneficiaries, such as parent-to-child or grandparent-to-grandchild exclusions, can also be exempt.
Other exemptions may apply to gifts where no consideration or money is exchanged, or certain court-ordered conveyances that are not pursuant to a sale. Consulting with a tax professional or the County Recorder’s office is advisable to confirm eligibility for an exemption.