California Documentary Transfer Taxes 101

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There are a number of closing costs that come with a successful real estate transaction, including appraisal fees, mortgage insurance, and home inspection fees. But you may also be responsible for paying another lesser-known fee: documentary transfer taxes.

When a residential or commercial property exchanges hands between a seller and a buyer, the title is transferred from one party to the other. When this transfer occurs, there’s a “documentary transfer tax” that needs to be paid, which may or may not be your responsibility.

This transfer tax is collected by the county or the city and is typically calculated based on the sales price of the home. In California, counties charge $0.55 for every $500 of the sales price for this transfer tax, or sometimes $1.10 per $1,000. Upon transfer of the property, this amount is reduced by any outstanding mortgage.

Imposed City Taxes at Least Double the Amount Paid

Not only are there county rates that will be imposed, cities can also enforce additional transfer taxes. These city transfer taxes can be even higher than the fees imposed by the county.

How much a particular city charges will depend on its classification; namely, whether it’s a “charter city” or “general law city.” A charter city’s governing system is not defined by California law, but rather the city’s own charter. These cities have a lot of flexibility when it comes to imposing their own tax rates.

General law cities can impose a documentary transfer tax that’s equal to half the rate that its county imposes. If a general law city imposes its own tax, the county’s transfer tax is reduced by the city’s transfer tax so the taxpayer still pays $0.55 for every $500 worth of the property’s value.

There are plenty of charter cities across the state with a tax rate that’s much higher than the associated county rate. No credit for the city’s tax is credited by the county when a charter city implements its own specific tax rate over and above the county’s tax rate.

For instance, in Los Angeles, the city’s transfer tax rate is $4.50 for every $1,000 worth of property value. That’s more than four times the county transfer rate of $1.10 per $1,000 of property value. Homeowners in L.A. must pay a total of $5.60 ($4.50 city rate + $1.10 county rate) for every $1,000 worth of property value.

Who Pays the Documentary Transfer Tax?

The answer to this question will depend on the sales agreement. It is typically calculated when the title documents are filed with the county. That means it may be either the buyer or seller who is stuck with the bill. In California, the general rule is that the seller pays the documentary transfer tax in the majority of jurisdictions. But there are some areas where the opposite is true.

In other localities, there are no regulations at all when it comes to who should pay the fee, at which point the responsible party can be negotiated.

Many times this transfer tax is included in the closing disclosure and may be combined with other charges, which can make it nearly impossible to determine exactly how much you’re paying towards this fee, or who is paying it at all. That’s why it’s important to discuss this fee with your real estate agent so you’re aware of how much this fee is on its own, and whether or not you’ll be the one who is obligated to pay for it.

The Bottom Line

Each county generally stipulates the local regulations as far as who is obligated to pay for this tax. However, it may be possible to negotiate this at the time of offer and acceptance. It’s important that you ask your real estate agent if you will be the one dishing out the extra money so you can budget accordingly.