June 3, 2021

Attention San Diego Sellers: You’re About to Pay 3 Types of Transfer Taxes

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Closing costs might account for as much as 6% to 8% of the total sale price when selling a house in San Diego, California. If you're a San Diego home seller, you've probably observed that a significant portion of these expenditures goes to transfer taxes. So, what exactly are these fees, and why are they so high?

Various government agencies levy transfer taxes on the transfer of homeownership from one party to another. Taxes are proportionate to the value of a property, and since your property is typically your most important asset, they can quickly pile up.

Don't put off asking questions until you receive your settlement statement. Here's all you need to know about California transfer taxes for San Diego home sellers.

What are transfer taxes and how do they work in San Diego?

Transfer taxes, according to the National Association of Realtors, are "taxes levied on the transfer of title to real property." Simply put, the government assesses a fee when your home's title — the paperwork that entitles you to legal possession of that property — is transferred to another entity. You may be required to pay transfer taxes to the state, your county, and/or your city, depending on where you live. These taxes have the same objective as any other tax: to raise revenue.

Transfer taxes are usually paid by the San Diego home seller.

However, who pays transfer taxes may be determined by where you live. Though it is most customary for the seller to pay the state and county taxes in some neighborhoods in San Diego, California, the city transfer tax is shared or picked up by the buyers. A real estate agent specializing in Sell My House Fast in San Diego transactions, who has local knowledge and experience, is best suited to assisting you in determining which fees you are responsible for. These professionals will also be able to assist you in making the most of whatever market you're in.

transfer taxes in san diego

Steve Meyers, an experienced San Diego real estate agent, recommends sitting down with your agent and establishing a plan for a multiple offer environment if you know you want to pass on transfer tax charges to the buyer:

“These negotiations work best in situations where there are many offers - which is how the market is right now in San Diego. There are always several offers within the first day of a home being on the market. When there are numerous purchasers bidding on a property, it's much easier to have the buyer pay for costs & fees that aren't typically paid by buyers, such as a transfer tax or an HOA transfer fee. Unless they can create an atmosphere where there are numerous offers and a buyer is ready to pick up the expense of those products, we usually see the seller pay for these things.”

The taxes will be calculated by the escrow company handling your home sale and shown to you on your settlement statement. But it's too late to try to bargain the fees by the time you get the settlement statement, so talk to your agent about transfer taxes before you sit down at the closing table.

The different types of transfer taxes

It's all about location, location, location when it comes to transfer taxes. According to Meyers, transfer taxes are levied at three levels: state, county, and city, so you'll likely pay something to all three. You may also have to pay a transfer fee to the area homeowners organization.

Transfer taxes and fees are levied at varying rates by each governing authority. Here's how it works:

Transfer taxes levied by the state

In California, state transfer taxes are the only one-size-fits-all tax on home sales. A transfer tax of $0.55 per $500 of home value is levied by the state. For instance, a seller in Tahoe who sells their home for $480,000 will pay the same tax rate as a seller in Orange who sells their home for $790,000.

However, the rate, not the amount owed, is the common denominator here. Because state transfer taxes are proportional to house value, the seller in Orange would pay $869 in state transfer taxes, whereas the seller in Tahoe would only pay $528.

Transfer taxes levied by counties

Taxes on title transfers can also be used by California counties. Unlike state transfer taxes, however, county transfer tax rates vary greatly around the state.

A couple selling a home in Los Angeles County, for example, would pay $1.10 per $1,000 in county transfer tax. A couple selling in Napa County, on the other hand, would only get $0.55 per $1,000. If the residences of these two sellers were of comparable worth, the Los Angeles pair would pay twice as much in county transfer tax as the Napa couple.

Real estate transfer taxes imposed by the city of San Diego

The transfer of titles is also subject to a tax in some localities. These rates, like county transfer taxes, can vary widely from city to city and are the most complex of all tax tiers.

To begin with, the tariff varies from city to city. Take, for example, the tax rates in Culver City and Pomona. Despite the fact that these cities are only an hour and 15 minutes apart, Culver City has a transfer tax rate of $4.50 per $1,000 of house worth, whereas Pomona has a charge of only $2.20 per $1,000.

Second, some California towns have variable transfer taxes, which means they levy taxes at different rates depending on the value of the home. Take a look at how San Francisco separates its tax tiers, for example:

  • Homes worth more than $100 but less than or equal to $250,000 are subject to a tax of $2.50 per $500.
  • Homes worth more than $250,000 but less than $1,000,000 are subject to a $3.40 per $500 tax.
  • Homes worth $1 million or more but less than $5 million are taxed at $3.75 per $500.
  • A $27.50 tax is imposed on homes valued at $10,000,000 or more but less than $25,000,000.
  • Homes worth more than $25,000,000 are taxed at a rate of $30.00 per $500.

Fees for other transfers

Although only the state, city, and county have the legal authority to levy taxes, Meyers notes that homeowners associations and other local organizations may levy transfer fees.

“There is frequently a cost connected with putting the buyer's name on to the homeowners association or moving the seller's off, as well as supplying new keys, codes, and fobs to pools and clubhouses,” he explains.

Is it possible to deduct transfer taxes?

While transfer taxes cannot be deducted from your income tax return, they can be used to reduce the amount of capital gains taxes you pay. For those unaware, a “capital gain” is the net profit on your house sale or, to put it another way, any money you made from selling your home. These capital gains are taxed by the federal government in the same way that any other asset sale is.

Sellers, on the other hand, can subtract paid transfer taxes from the final sale price of their home. This deduction can help sellers pay less in capital gains taxes on any profit they make.

Exemptions from transfer taxes

There are a few circumstances in which you may not be required to pay transfer taxes on the selling of your house. If you qualify for an exemption, you must include the rationale for the exemption along with the appropriate code on the document. The following are some exceptions:

Gifts:

A property that is free of debts (such as mortgages or liens) is exempt from transfer taxes if it is given as a gift.

Transfers to a Revocable Trust:

Homeowners who transfer property to a revocable trust can do it tax-free. If the property is sold to a trust, however, this exemption does not apply.

Court-mandated conveyances:

Certain title transfers may be exempt from transfer taxes if they are ordered by the court.

Property worth less than $100:

Transfer taxes are not applied to properties worth less than $100.

Contact Steve Meyers to calculate the Net Proceeds you'll earn on your house. To help you see your bottom line, this tool calculates your closing costs, such as transfer taxes, agent commissions, and home renovations.

Working with a top real estate agent is another wonderful approach to figure out your transfer taxes (and other closing charges) before you complete your property sale. Meyers outlines the following benefits that these local expertise can provide:

“A knowledgeable real estate team who is familiar with the neighborhood... can present the seller with an itemized estimate of their revenues. This can provide a breakdown of prices that are considered 'customary in their community.'”

These common expenses aren't always exclusively buyer or seller fees. Rather, many are negotiable dependent on market conditions. The key is to talk about transfer taxes with your agent early on in the process so you know if you have any clout to negotiate on this topic.

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