Transferring the title of a property might seem straightforward, but it involves several considerations that can have significant financial and legal implications. Here are six common aspects that property owners often overlook when transferring title:
1. Increase in Real Estate Taxes
When a property changes hands, it may trigger a reassessment of the property’s value for tax purposes. This can lead to an increase in real estate taxes, especially if the property has appreciated in value since the last assessment. It’s important to understand how your local jurisdiction assesses property and how a title transfer might affect your tax obligations.
2. Documentary Stamp Taxes
In many states, transferring property requires paying documentary stamp taxes (often referred to as “doc stamps”). These taxes are based on the property’s sale price or its current market value. Before transferring title, check the applicable rates in your state and calculate the potential cost to ensure there are no surprises.
3. Triggering the Due-on-Sale Clause
Many mortgages include a due-on-sale clause, which requires the full repayment of the outstanding mortgage balance if the property is transferred. If you’re considering transferring title, review your mortgage agreement to see if this clause is included. Transferring the property without addressing this clause can lead to significant financial consequences.
4. Homestead and Spousal Joinder
In some states, if a property is designated as a homestead, the law may require the consent of both spouses to transfer title, even if only one spouse is listed as the owner. This is known as spousal joinder. Failing to obtain the necessary consent can invalidate the transfer or lead to legal complications down the line.
5. Impact on Tax Basis
The tax basis of a property is crucial in determining capital gains taxes when the property is sold. Transferring a property can affect its tax basis, potentially increasing the capital gains tax liability for the recipient when they decide to sell the property. It’s important to understand how transferring title affects the tax basis and the potential tax implications for the new owner.
6. DIY Risks in Handling Your Most Expensive Asset
Handling the transfer of property title on your own can be risky, especially if the documentation is not completed correctly. Errors in the transfer process can lead to disputes over property
ownership or issues with the legal validity of the transfer. Given that real estate is often one of the most valuable assets a person owns, it’s wise to consult with a professional to ensure that all paperwork is correctly executed and filed.
Conclusion
Transferring property title is a significant legal and financial action that should not be taken lightly. Before proceeding, consider these often-overlooked factors to avoid unexpected costs and legal issues. Consulting with a real estate attorney or a professional experienced in property law can provide guidance and help ensure that the transfer process goes smoothly.
By: Danielle Vaughn, Board Certified Real Estate Attorney