Since 1968, New Jersey has had a real estate transfer fee whose purpose is to cover the tracking and cataloging of the real estate sold every year. Knowing what it is, who pays it, how it is calculated, and how it ultimately affects your real estate sales or purchases is essential if you intend to engage in a real estate transaction in the state of NJ.
What is a Realty Transfer Fee in NJ?
N.J.S.A. 46:15-7 et seq. imposes a realty transfer fee (RTF) on the seller of real property for recording a deed for the sale. In essence, the Realty Transfer Fee (RTF) demonstrates that property was transferred between two parties. It must be paid when the deed is recorded at a rate of 1% of the property’s value. The RTF applies to every conveyance of title to real property in New Jersey, unless the deed or transfer meets an exemption as provided under N.J.S.A. 46:15-10 and 46:15-10.1.
The most current Realty Transfer Fee law, Chapter 33, Laws of 2006, imposes a 1% fee on buyers in transfers of Class 4A, Class 2 and Class 3A properties, but only if the property includes a building or structure intended or suited for residential use transferred to the same grantee with the farm property; and cooperative units, that incur the 1% fee for an entire consideration recited in the deed in excess of $1 million.
Who is Responsible for Paying the Realty Transfer Fee?
The seller pays the RTF unless the property is worth more than $1,000,000 in commercial and residential properties; the buyer also pays 1% of the property’s value.
Is the Realty Transfer Fee Tax Deductible?
The RTF is not tax-deductible. It is a one-time tax instead of property taxes which are paid every year for the duration in which you own your home and are tax-deductible.
How the Fee Is Calculated
The fee isn’t one flat rate—it changes depending on the sale price of the property. Here’s how the rates work:
If the Sale Price Is $350,000 or Less:
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$2.00 per $500 of consideration up to $150,000
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$3.35 per $500 from $150,001 to $200,000
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$3.90 per $500 from $200,001 to $350,000
If the Sale Price Is Over $350,000:
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$2.90 per $500 up to $150,000
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$4.25 per $500 from $150,001 to $200,000
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$4.80 per $500 from $200,001 to $550,000
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$5.30 per $500 from $550,001 to $850,000
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$5.80 per $500 from $850,001 to $1,000,000
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$6.05 per $500 over $1,000,000
For example, if you’re selling a home for $600,000, you’ll use the second set of higher rates, and your total fee will be calculated using multiple tiers.
Does Everyone Pay This Transfer Tax?
The state of New Jersey divides its properties into classes or sections. Some types of properties pay the RTF while others don’t. Class 1 properties are vacant, idle land that is not being used for any purpose and is not subject to the RTF. Class 2 are residential homes, and the larger the property/home, the higher the amount of tax paid. Class 3A land is farm property used exclusively to produce goods. If there are no buildings or barns on this kind of property, it is excluded from the RTF. Class 3B properties are working farms with structures and are taxed through the Farm Assessment Act, where the taxes paid directly relate to the farm’s productivity. Class 4A property is for commercial use where the income derived is from immediate use of the land such as malls, theaters, stores, supermarkets, restaurants, etc.
Exemptions to the Realty Transfer Fee
There are a few exemptions from the RTF. The first is between family members. The sale of a property between parent and child, husband and wife, and siblings are exempt. The transfer of a deed from a stepparent to a step-child is only 50% exempt unless the stepparent has adopted that child. Other exemptions are deeds worth less than $100 (very unlikely), correcting or confirming an already recorded act, 90 days after finalizing a divorce, and an heir receiving property from an executor as part of the estate inheritance. Lastly, Class 1 properties are exempt from the 1% fee only for buyers.
Some exemptions include:
- Property transferred for less than $100
- Transfers between family members (such as spouse-to-spouse or parent-to-child)
- Transfers as part of a divorce within 90 days
- Correcting a deed (not changing ownership)
- Transfers to or from government entities
- Transfers from an estate (executor or heir)
- Bankruptcy-related transfers
- Cemetery lot sales
- Cooperative apartment conversions to condominiums
To claim an exemption, sellers must file an affidavit—usually the RTF-1 form—and explain the reason for exemption.
What is a Mansion Tax?
A mansion tax charges 1% of the property value when it is more than $1 million. Usually, the buyer pays the fee; however, sometimes, the buyer and seller will negotiate the settlement to include a partial payment from each to pay the tax.
Only a 4A (commercial property), 2 (residential), 3A (farm property with a residential building) are required to pay RTF while industrial properties, condominiums, and apartments are not.
Some Real-Life Cases
Let’s look at a few actual tax calculations.
Case A: A residential property belonging to a 70-year old with a value of $530,000 would pay an RTF of $2,650 because there is a partial exemption.
Case B: Husband and wife buying farmland with a farmhouse on the property valued at $889,200 would pay an RTF of $8,892.
Questions?
Case 1: My two brothers and sister have inherited our family home from our parents. My sister wants to buy out my brothers for $300,000. There is $30,000 still left on the mortgage. How would the RTF be calculated on the transaction?
Answer: She owns a one-third interest in the house, so the Realty Transfer Fee would be calculated by adding what she pays out to the brothers ($300,000) and two-thirds of the mortgage ($20,000), so the amount subject to Realty Tax is $320,000 x 1% = $3,200.
Case 2: A father sells his home to his son and his stepson. Because they are family, there would be a total exemption, correct?
Answer: Unfortunately, the exemption would be partial. The son will receive the exemption, but his part of the sale would not be exempt unless the stepson were adopted by his stepfather.
Consult our Real Estate Lawyers about your Realty Transfer Fee in Ocean and Monmouth County, NJ.
The State of New Jersey does not require a lawyer to purchase a property. That being said, it is always a good idea to have a professional guide you through the process. Many forms need to be filled out, contracts to be written, investigations to be done. An experienced real estate lawyer at our firm, Chamlin, Uliano, & Walsh, has the necessary resources to make the buying or selling process smoother for you if you are in the midst of a real estate decision and related transaction.
We can prepare your offers, assist with questions about your property inspection, research title histories, and take care of the closing procedures. You will experience peace of mind knowing that our knowledgeable attorneys work hard to help you complete your transaction. You can rely on our legal support in Long Branch, Red Bank, Rumson, Colts Neck, Howell, Belmar, Lavalette, Ocean Township, and towns throughout Monmouth and Ocean County.
If you are buying or selling a property and in need of assistance, contact us today at 732-440-3950 or fill out the online contact form. If you want yourself or your property in the best hands, contact us and see what a difference we can make.