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It's The Law: Documentary Stamp Tax Can Be Expensive

Question: I recently sold some property and at the closing was charged over $2,000.00 for deed stamps. What are deed stamps and why do I have to pay them?

Answer: Deed stamps are not sold by the post office. Deed stamps are tax by the State of Florida on real estate. In days gone by, the tax was evidenced by affixing stamps to the deed. Today, stamps are not placed on the deed but the tax must still be paid at the time the deed is recorded.

The tax is most significant, because Florida has no personal income tax. By Statutes, but the interest in real property is transferred by deed or similar document, the purchaser or any other person by his or her direction must pay a tax of $.70 on each. While the statute makes payment the purchaser's obligation (with the assumption that the purchaser will record the deed) the seller can be held responsible for payment by the sale contract. Customer in Collier County, which is incorporated in our local sales contract, calls for the seller to pay the documentary stamp tax. This underscores the importance of understanding all terms of a contract before you sign. Nobody wants to be surprised with a big bill for documentary stamp tax. That is especially true in this market, when many sellers are selling for less than what they brought for it.

Even if you know there is a documentary stamp tax on deeds, other surprises lurk in the statutes that can lead to unnecessary expense, absent proper planning. The statutes requires tax be based upon full consideration for the conveyance. For purposes of the statute, consideration in includes money paid, discharge of an obligation, mortgage to the seller, mortgage which is not paid off and remains on the property and other property or assets given in trade. That means the tax is based on more than really cash to seller.

One of the biggest areas of the surprise is deeds between husband and wife. It is not usual for one spouse to apply for financing and take title to keep things simple. After closing, that spouse conveys to both spouses so that if one dies, the other one will own the property. Although the transfer is a gift, the statute mandates documentary tax be paid as if the acquiring spouse paid one-half of the mortgage. Assuming if a $500,000.00 mortgage, that means the spouse will be pay documentary tax of $1,750.00. That is probably a lot more than they except to pay for a simple deed. And, if they decided that it would be better for the property to be owned by the spouse who is not on title, the tax is based on the full amount of mortgage. In our example, that would mean a tax of $3,500. This large penalty on conveyance between spouses could have been avoided with proper pre closing planning.

A gift of property that does not have mortgage against it is not charged documentary tax, neither are governmental entities.

However, the statute makes any non-exempt party on a conveyance with government entity responsible for the tax. Adding insult to injury, when a mortgagor deeds property to the bank in satisfaction of a mortgage and lured for foreclosure, the tax is based upon the balance remaining due on the mortgage.

There are some exemptions, one of which may be surprising. A short sale occurs when a borrower sells property and mortgage holder agrees to accept the proceeds of sale in satisfaction of the mortgage. That can leave hundreds of thousands of dollars of unpaid debt and under the documentary tax statute, all of that would be included as considered. In 2010, the legislature amended Florida statutes to exclude the unpaid balance of the debt that is forgiven and released by a mortgage holder in a short sale from the consideration on which the documentary tax is paid.

Other conveyances are also exempt from tax. When a property owner creates a revocable living trust and transfers to his or her trust, the conveyance is exempt from tax as long as the beneficial interest in the trust is the same as the pre-transfer ownership, even if the property has a mortgage. A distributive deed from a personal representative in probate is not taxable unless the recipient is getting a bigger share of the realty than he or she is entitled under the will. In that case, the excess value is subject to the tax. If you buy property at a foreclosure sale, the certificate of title issued by the Clerk of Courts is subjected to the tax. However, the tax is based only on what is paid for the property at foreclosure sale and not the amount of the mortgage that was foreclosed.

Transfers from partnerships, corporations, or limited liability companies can be exempt from the tax if the company is not paid for the transfer, the property does not have a mortgage and the recipient takes ownership in the same percentage as entity. The Department of Revenue like to look at these transfers and any slip can result in a significant tax, plus penalties and interest. That transfers can be especially tricky when there are debts, mortgages or other delaniigns between all parties.

Florida's Department of Revenues is aggressive in collecting taxes due on real estate transfers. The tax is significant. Anyone involved in a real estate transaction should want to avoid payment. The time to worry about the tax is at the beginning of any involvement in real estate acquisition or transfer. That means, retain an attorney before proceeding, rather than after the Department sends you notice that payment is due.

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