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Q I am planning to sell my residence. I understand there is a document tax I will be expected to pay when my residence is sold. Could you please explain this document tax and how it is computed?
A Although the contract for purchase and sale can state the buyer will pay this tax, it is customary for the contract to state the seller will pay the state transfer tax, which is often referred to as a documentary stamp tax. This is because the seller is expected to transfer the title to his or her real property free and clear of all encumbrances. The transfer tax is considered an encumbrance to clear title, because the Florida statutes state this tax must be paid to the clerk of the Circuit Court in the county where the property is located before the deed transferring the ownership can be recorded.
This tax on the transfer of real property is 70 cents for each $100 of consideration, or any fraction thereof. This means if you sell your home for $70,000, the transfer tax that you as the seller will pay to the state of Florida is $490.
Q Will the buyer also be required to pay a document tax?
A Although the contract can state otherwise, it is customary for it to state the buyer will pay the documentary stamp tax relating to any promissory note given in exchange for the purchase of the real property. This tax is presently 35 cents for each $100 of consideration, or any fraction thereof. This means if the seller accepts a promissory note from the buyer for $50,000 of the purchase price, the documentary stamp tax that the buyer will be required to pay will be $175. Likewise, if the buyer borrows some of the purchase price from a third party such as a bank, the buyer will pay this documentary stamp tax for the promissory note he or she delivers to the third party.
Since the seller or the lender will want the repayment of the promissory note to be secured by a mortgage, which will be a lien on this real property, there is an additional tax that is known as an intangible tax that must be paid when the new mortgage is created. Although this one-time non-recurring tax is the obligation of the seller or the lender, the seller or the lender is allowed to request the borrower to pay the tax. Accordingly, the contract for purchase and sale will state whether the borrower or the lender will pay the intangible tax.
The intangible tax on a mortgage is paid to the clerk of the Circuit Court when the mortgage is recorded in the official records. The intangible tax is presently 2 mills, or $2 per $1,000, on the exact dollar amount of the new mortgage. Thus, if the buyer gives a mortgage to secure the repayment of a $50,000 promissory note, the intangible tax will be $100.
Q I also understand the seller is required to pay for title insurance. What is title insurance?
A Title insurance is issued to an owner of real property or to a person having a lien, such as a mortgage, on real property. The purpose of title insurance is to indemnify the owner of the real property or the holder of a mortgage against a loss sustained as a result of the policyholder's title to the property being defective, invalid, or in the event of an adverse claim to the property due to past events.
Q I received a title insurance policy when I initially purchased my residence. Why must a new title insurance policy be issued for this sale of my residence when I already have a title insurance policy?
A The coverage extends only to the owner who is being insured or to those who succeed to the interest of the insured by operation of law, such as an heir or personal representative (executor). An owner's title insurance policy cannot be assigned to a subsequent purchaser of your real property. The title search must be updated and a new title insurance policy must be issued to the buyer of your residence.
Gregory G. Gay is an attorney in Pasco County who specializes in elder law. You can write to him c/o Seniority, The Times, P.O. Box 1121, St. Petersburg, FL 33731.