How does the tax deduction work for state and county transfer taxes?

calendar October 27, 2008
tax
Mike F asked:


My wife and I are buying a new house in MD where the state and county transfer taxes will be about $8000. We are going to close in December this year, but will probably take a standard deduction. Can we deduct the property transfer tax even though we are going to take the standard deduction this year? Are transfer taxes deductions or credits?

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3 Responses to “How does the tax deduction work for state and county transfer taxes?”

  1. Nick, CPA Says:
    October 31st, 2008 at 4:41 am

    The transfer tax you pay is not deductible, it adds to your cost basis. When you sell the house the amount will reduce your gain but if you live in the house for 2 years within a 5 year period the first $500K of gain will be excluded anyway so essentially there is no tax benefit to the transfer tax you pay.

    You may want to check on whether it is a deduction in Maryland, I seriously doubt it. I searched and found no support for a deduction of the transfer tax in Maryland.

    Sorry.

  2. Judy Says:
    October 31st, 2008 at 11:25 pm

    They aren’t deductible anyway, so it doesn’t matter – but for the state and local taxes that ARE deductible, you can only deduct them if you itemize, not if you take a standard deduction.

  3. bostonianinmo Says:
    November 3rd, 2008 at 12:58 am

    Sorry, but transfer taxes are not deductible. Ad valorem property taxes are but transfer taxes and recording fees are not. You have to add the transfer taxes to the cost basis of the home. This will reduce any gain on the sale and any tax due at that time, if any.

    If you take the standard deduction you cannot deduct any taxes of any sort whatsoever.

    Thanks for the heads-up on that MD ripoff. Guess I won’t be moving there any time soon!

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