Real Estate Math Formulas: Calculating Transfer Taxes

The math portion of your real estate licensing exam may ask you to calculate the transfer taxes for a sale. In almost all real estate transactions, buyers and sellers must pay taxes to their local counties for every property sale. For buyers, this is often called the recordation tax. For sellers, this is often called a grantor’s tax. In most cases, the amount of taxes is based on the sales price of the property.

Real Estate Math Formulas: Calculating Transfer Taxes

In order to calculate the transfer taxes, you first need to know what the transfer tax rate will be. This is often expressed as something like $0.50 per $500. This means that a buyer or seller would have to pay 50 cents for every $500 increment of the sales price. So, for a $200,000 property, a person would need to pay ($0.50 / $500)* $200,000 = $200 in transfer taxes.

Real Estate Math Practice Problem: Calculating Transfer Taxes for a $320,000 Property

The real estate math licensing exam may have the following problem:

Example. Sally plans to purchase Bob’s home for $320,000 in Sweetwater County. The County charges a recordation tax of $0.15 per $100 to buyers and a grantor’s tax of $1.25 per $100 to sellers. Calculate the transfer taxes for Sally and Bob.

Solution. To solve this problem, we can first convert each rate to a decimal.

Recordation Tax Rate = $.15/$100 = 0.0015

Grantor’s Tax Rate = $1.25/$100 = 0.0125

Then, we multiply these numbers by the sales price:

Recordation Tax = $320,000 x 0.0015 = $480

Grantor’s Tax = $320,000 x 0.0125 = $4,000

Therefore, Sally pays $480 in taxes and Bob pays $4,000 in taxes.

BONUS: Real Life Real Estate

In real life the title company will be calculating the transfer taxes for you and you’ll be able to see them laid out on the settlement statement. As a real estate agent, it is important for you to review the settlement statement prior to closing to ensure your numbers are correct and to explain these numbers to your client.

Need more real estate math practice?

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