Real Estate Transfer Taxes in Texas

As the Texas Legislature begins its 2011 session, it will be looking at various ways to eliminate the projected $25 billion shortfall from the 2011-2012 state budget. One of the ideas that will be considered again is the initiation of a real estate transfer tax.

There has been talk of a real estate transfer tax in Texas for years. In fact, last legislative session, more than 11 attempts were made to pass a real estate transfer tax. Thankfully, all of these bills were defeated. Real estate transfer taxes raise the cost of purchasing and selling homes, price some buyers out of the market, and reduce economic activity.

What it is

According to the Texas Association of REALTORS®: "A real estate transfer tax is a tax assessed when ownership of property is transferred from one party to another. Some states also assess such a tax on long-term leases. This type of tax typically comes in the form of a percentage of the value of the property."

Currently, Texas is one of only 13 states without a real estate transfer tax. However, with a $25 billion projected budget shortfall, the state is eager to get money from any means available and the real estate industry is a prime target. Transfer tax amounts vary by state from 0.1 percent of the purchase price to as much as 1.5 percent of the purchase. Therefore, on the sale of a $200,000 home, a 1.5 transfer tax could add as much as $3,000 in additional costs that a buyer or seller would have to pay at closing.

Impact

According to the Texas Association of REALTORS®: "The National Association of REALTORS® commissioned a study to analyze the effects of a transfer tax on real estate. The report assumed a tax rate of 0.5% and a $125,000 purchase price. Based on these assumptions, the cost of buying a home would increase by about $600, and home sales would decline by almost 3%. In addition, the Real Estate Center at Texas A&M University concluded that the creation of a transfer tax on real estate may create more problems than it solves. This type of tax could cost Texas $955.5 million in lost economic activity with 11,575 jobs lost."

What it Does

•Transfer taxes raise the cost of purchasing and selling a home-pricing many buyers and sellers out of the market and reducing local economic activity. This kind of taxation is damaging and it affects anyone who is trying to buy or sell a home, land, or business, including: New homeowners, seniors wanting to downsize, churches, civic groups, and military families needing to move due to relocation.

•Transfer taxes are discriminatory as they tax only one type of asset-real estate. Similar taxes are rarely applied to financial assets, such as stocks and bonds.

•Transfer taxes can be volatile. For example, a transfer tax of $10 per transaction was initiated in New Jersey, but within 12 months the rate was increased to .78 percent of the sales price.* Therefore, a home priced at $300,000 initially had a transfer tax of $10, but at .78 percent that tax increased to $2,340.

•A real estate transfer tax in excess of the costs associated with the administration of property-ownership records is an arbitrary levy. This levy is not systematically related to a household's ability to pay, or to the benefits derived from public services.

During the 81st regular session of the Texas Legislature in 2009, there were three senate bills (SB-950, SB-934, SB 942) that were introduced that could potentially increase the costs of purchasing a home.

Senate Bill 942, was a bill that would have allowed Texas counties to enact new taxes for transportation projects. A new tax option considered was a real estate transfer tax to be paid within 30 days of the transfer of property. Each county would have had the power to set their own transfer tax rates and would require that the real estate transfer tax be paid before the county clerk records any instrument relating to a real estate transaction in the state of Texas.

This spring, the 82nd Texas Legislature will look at implementing a transfer tax. Be sure to voice your concerns to your state office holders by asking them to oppose any real estate transfer tax and by giving your fair share to TREPAC. Your TREPAC dollars will help fight to keep taxes like these from ever becoming law.

*According to the NATIONAL ASSOCIATION OF REALTORS® Web site, www.realtor.org.