Decoding Realty Transfer Taxes
The Commonwealth of Pennsylvania imposes a 1% transfer tax on Deeds transferring real estate within the Commonwealth. They also impose the transfer taxes on the recording of a Memorandum of Lease or the Lease itself where the term of the Lease is 30 years or more. There also is a local realty transfer tax which, in most jurisdictions, is also 1%; however, some local taxing jurisdictions have a higher percentage (e.g. Reading). There are exemptions from the transfer tax on certain transfers within the family. The family exemptions apply to:
- Transfer between spouses
- Transfer to lineal descendants including transfers from parents to child or children, grandparents or grandchild or grandchildren, etc.
- Transfer to siblings but not children of siblings
Many clients are under the impression that if they transfer the real estate they now own individually to a limited liability company, there will be no transfer taxes as long as they are the sole members of the limited liability company. This is not true and, unfortunately, the transfer taxes are imposed on the new Deed from individuals to a limited liability company even if they are the sole members of the limited liability company. Thus, if you are buying real estate and it is your intention to have the real estate owned by a limited liability company, you should enlist your attorney to structure the Agreement of Sale so that the limited liability company is purchasing the property and the Deed is directly from the seller to the limited liability company.