Both the state and the county impose a real estate transfer tax in Pennsylvania based on the property's location
That's why it's important to familiarize yourself with Philadelphia's transfer tax to transfer property there. The buyer and seller typically split the tax burden and pay it after filing with the Record of Deeds Department.
You must pay that tax within 30 days of the transfer date. Otherwise, you'll incur additional charges. Equally important, if the Departments of Records or the Department of Revenue determines you attempt to bypass the tax, the tax assessment increases an extra 50% of the tax due.
Philadelphia's Transfer Tax is Among the Highest in Pennsylvania
The Commonwealth imposes a 1% transfer tax on the value of the real estate. However, Philadelphia imposes an additional 3.278% tax on the value of the deeded real estate for a combined rate of 4.278%. As a result, Philadelphia's real estate transfer tax is among the highest in Pennsylvania.
Montgomery County, Pennsylvania's transfer tax is only 1%. So, if you're looking to transfer property in the Philly area, you might want to start by talking with a real estate lawyer to ensure you're covered.
Percentage of Ownership Change Triggering the Transfer Tax
An ownership change of 75% or more triggers the transfer tax in Philadelphia. The county bases the tax on actual consideration paid, which includes any liens or encumbrances on the real estate.
It's important to note that the transfer tax applies not only to selling a property but also to changes in ownership in real estate by deed or other legal documents, including long-term leases.
You can get more details by visiting the City of Philadelphia's website.
Exemptions from the Philadelphia Real Estate Transfer Tax
Pennsylvania and Philadelphia provide exemptions from transfer taxes depending on the purpose and type of transaction and the parties involved.
However, the law may vary between Pennsylvania and the county. As a result, the Commonwealth may exclude some transactions from the transfer tax, while Philadelphia may not. So, it makes sense to talk with a real estate attorney familiar with the laws of each sector.
For instance, Pennsylvania's real estate transfer tax law excludes transfers between a stepparent and a step-child (including a step-child's spouse). But, on the other hand, Philadelphia's transfer tax doesn't.
Philadelphia transfer tax law excludes 28 transactions, while Pennsylvania transfer tax law excludes 34 transactions.
Common exclusions include:
- transfers to an excluded party by gift or dedication
- confirmation deeds
- correctional deeds
- transfers between certain relatives and specific nonprofits
- transfers of co-op interest
However, such transactions must also meet specific requirements.
The Government is Excluded from Transfer Tax
Pennsylvania and Philadelphia, transfer tax laws exclude the federal, state, or local government or its agencies from tax for all transactions.
However, at times the party receiving the transfer may not be excluded, making them responsible for the transfer tax—for example, properties purchased at a sheriff's sale or from a state or local government agency.
Family Member Exclusions to the Tax
Pennsylvania and Philadelphia exclude tax transfer costs with transactions between certain family members, including:
- Parent and child (including child's spouse)
- Grandparent and grandchild (including the grandchild's spouse)
- Siblings (including the sibling's spouse)
- Husband and wife
- Divorced spouses
None of these relationships include transfers between uncles/aunts, nieces/nephews, or cousins. In addition, although the tax transfer law excludes transfers between spouses, the transfer must be under a divorce decree.
Philadelphia explicitly excludes transfers between life partners that meet the requirements of a life partnership under the Philadelphia Code from real estate transfer tax.
However, while the Pennsylvania real estate transfer tax law does not explicitly list life partners, the law protects same-sex marriages under the definition of husband and wife.
Nonprofit Housing Exemptions from Transfer Tax
Philadelphia offers specific exemptions for transfers involving nonprofit housing corporations incorporated by the City to support affordable housing and nonprofits.
For example, Philadelphia excludes the imposition of real estate transfer tax on both parties when a party transfers to a nonprofit housing corporation, such as the Philadelphia Housing Authority.
In addition, the real estate transfer tax excludes transfers to and from nonprofit housing organizations that renovate properties and subsequently transfer the property to a person meeting specific income requirements.
However, the transfer cannot be to a for-profit entity or a person failing to qualify as having a low-to-moderate income.
These exclusions may be significant to real estate developers and nonprofit entities seeking to develop within Philadelphia.
Exemptions for Religious Organizations
Generally, the Philadelphia transfer tax excludes religious organizations and other nonprofit corporations. However, the exemption applies if the transferor has not used the property commercially.
Confirmation Deed Exclusions
Philadelphia and Pennsylvania, transfer tax laws exclude confirmation deeds. However, the deed must be made without consideration, previously recorded, and intended to confirm an ownership interest in a property.
A typical example includes a deed to confirm a party's ownership interest in a property held as a joint tenant with the right of survivorship with a party that has since deceased.
Similarly, Philadelphia and Pennsylvania laws exclude correctional deeds from real estate transfer tax if done solely to correct an error regarding the description of the parties or the property.
For tax exclusion, the corrective deed must:
- Convey the same property interest as in the original deed
- The parties must have treated the property interest expressed in the correctional deeds as that of the grantee
- The parties, at no time since the original act, treated the property interest described in the original deed as that of the grantee.
Talk to an Experienced Real Estate Attorney
It's essential to understand that transfer taxes exist in residential and commercial property transactions. So, you may need to consult a real estate attorney near you to protect your interests. In addition, High Swartz offers various legal services to help clients with almost any legal issue, from real estate and business law to estate planning and family law.
The information above is general: we recommend you consult an attorney regarding your circumstances. The content of this information should not be considered legal advice or a substitute for legal representation.
