One of the topics that sellers need to be aware of when they put their home on the market is a realistic expectation of net proceeds.
Most sellers focus on the commission as the largest closing cost that they have to deal with, but they are often caught unaware about another large cost to them at closing: conveyance taxes. In Connecticut, sellers are responsible for paying the tax when a property is transferred. There are actually two conveyance taxes–one to the municipality and one to the state.
How are conveyance taxes calculated?
The state portion is a uniform tax of .005 (1/2%) of the purchase price up to $800,000. For properties over $800,000, the tax is 1/2% for the first $800,000 and 1% for anything over $800,000. So on a home sold for $300,000, the conveyance tax to the state is $1500. A home that sells for $900,000 would pay 1/2% on $800,000 ($4000) plus 1% on the remaining $100,000 ($1000) for a total of $5000. Commercial properties, including non-owner-occupied investment properties, pay 1% regardless of the purchase price.
The municipal portion of the conveyance tax is calculated for most towns at the rate of .0025. So the $300,000 home would pay $750 and the $900,000 home would pay $2250 to the town each is located in. There are however 18 “targeted investment communities” in Connecticut that have the option of imposing an additional .0025 on property transfers (for a total of up to .005). These towns are Bloomfield, Bridgeport, Bristol, East Hartford, Groton, Hamden, Hartford, Meriden, Middletown, New Britain, New Haven, New London, Norwalk, Norwich, Southington, Stamford, Waterbury, and Windham.
In 2010, legislation was enacted that would bring the municipal tax rate back to .0011 (.0025 was to be a temporary hike that lasted longer than expected). So as of July 1, 2011, municipal rates will be .0011 for all towns except the 18 mentioned above, which have the option of adding up to .0025 to their rates, bringing the maximum to .0036.
Are There Exceptions?
There are exemptions to the conveyance tax, including transfer between spouses, property transfers under $2000, certain resales by relocation companies, and transfers to certain non-profit organizations. In 2010, Connecticut enacted legislation that would exempt from conveyance taxes those sales that were deeds in lieu of foreclosure or short sales where the sales price was less than what was owed on mortgages and liens.
For an interesting look at the history of conveyance taxes in Connecticut and a comparison of tax rates of other states, see OLR Backgrounder.
Peggy Chirico, REALTOR®
Serving the Greater Hartford Area
Prudential Connecticut Realty
If you are buying or selling a home in Hartford County or Tolland County, please call me at 860-748-8900, , or use the Contact Request Form. I would be happy to help you with your home search or answer any of your real estate questions.
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