Where and when you pay excise tax

Excise tax on a home sale is paid to your county or municipality at closing, not to the federal government. The title company or closing attorney handling your sale collects the amount owed, deducts it from your proceeds, and sends it to the local tax assessor or recorder's office on your behalf. You do not write a separate check or file a form yourself — it happens as part of the standard closing process.

The tax is due on the day the deed transfers. In most states, the title company knows the rate and calculates what you owe based on the sale price. Some states require the buyer to pay; others require the seller. A few split it between both parties. Your purchase agreement or sales contract should specify who pays, though local law may override what the contract says.

If you are refinancing rather than selling, you typically do not owe excise tax. The tax applies to a change of ownership, not to borrowing against a property you already own.

Key Takeaways

  • Excise tax is collected at closing by the title company and sent directly to your county, so you do not pay it separately.
  • The rate and who pays (buyer or seller) varies by state and sometimes by county, and your sales contract should state which party is responsible.
  • The title company calculates the amount owed based on the sale price and deducts it from the seller's proceeds before you receive your money.
  • If you are refinancing, you do not owe excise tax because no ownership change occurs.

How the title company calculates what you owe

The title company takes the sale price of the home and multiplies it by the excise tax rate for your county. In Washington state, for example, the rate is 1.75 percent of the sale price. In New York City, it is 1 to 3.9 percent depending on the price and whether the buyer is a corporation. Some counties have a flat fee per thousand dollars instead of a percentage.

The calculation is straightforward, but the rate itself varies widely. Before closing, the title company sends you a closing disclosure that lists the excise tax amount as a line item. Review it to make sure the sale price and rate match what you expect. If the numbers look wrong, ask the title company to explain the calculation before you sign.

Some states exempt certain sales — for instance, transfers between family members, transfers to a trust, or sales of agricultural land. If your sale might may have access to for an exemption, tell your real estate agent or title company early. They will need to file paperwork with the county to claim it, and that process takes time.

What happens if you do not pay at closing

You cannot close without paying excise tax. The title company will not record the deed or transfer the money until the tax is paid and the county confirms receipt. If you try to close without paying, the transaction simply does not complete — your lender will not fund the loan, and the sale falls through.

If excise tax is owed but somehow goes unpaid after closing, the county will place a lien on the property. The new owner (or their lender) will discover this during a title search and will demand that the seller pay before the sale can close. In practice, this almost never happens because the title company's job is to ensure the tax is paid before the deed is recorded.

Negotiating who pays in your sales contract

In some states, the law sets who pays. In others, it is negotiable and goes into the purchase agreement. If you are the seller, you may try to push the tax onto the buyer. If you are the buyer, you may push back. The outcome depends on the local market and how badly each side wants the deal.

In a strong seller's market, buyers often accept paying the tax to make their offer more attractive. In a buyer's market, sellers may have to absorb it. Your real estate agent can tell you what is standard in your area and what leverage you have. Whatever you agree to, make sure it is written into the contract — do not rely on a handshake or an email.

If the contract does not mention excise tax, state law determines who pays. Check with your title company or agent about your state's default rule before you negotiate.

How excise tax affects your net proceeds

If you are the seller, excise tax reduces the amount of money you take home. A home that sells for $500,000 in a state with a 1.75 percent excise tax means $8,750 goes to the county instead of to you. That money comes out of your sale proceeds before you receive anything.

When you are planning your sale, factor excise tax into your expected net proceeds. Your real estate agent's net sheet should show the tax as a separate line item so you can see exactly how much it costs you. If the buyer is paying the tax instead, it does not affect your proceeds, but it does reduce the buyer's cash at closing.

Excise tax in different states

Excise tax on real estate sales exists in roughly half of U.S. states, but the rates and rules differ significantly. Washington has a 1.75 percent tax on all residential sales. New York charges 1 to 3.9 percent depending on the sale price and buyer type. Illinois charges 0.1 percent. Some states have no excise tax at all.

A few states tax only the buyer; others tax only the seller; some tax both. Some exempt owner-occupied homes but tax investment properties. Some have lower rates for first-time buyers or for sales below a certain price. If you are buying or selling in a state you are new to, ask your title company or real estate agent what the local rate is and who pays.

If you are moving between states, do not assume the rules are the same. The tax you paid in one state may not apply in another, and the rate could be much higher or lower.

Frequently Asked Questions

Can I deduct excise tax from my taxes?

No. Excise tax is a transfer tax, not a property tax, and the IRS does not allow it as a deduction on your federal income tax return. Some states may allow it as a state tax deduction, but that varies. Talk to a tax professional about your specific situation.

What if the sale price is not the actual price we agreed to?

The excise tax is based on the price recorded in the deed, which is the price you and the buyer agreed to in the contract. If you try to record a lower price to reduce the tax, that is tax evasion and is illegal. The county can audit the sale and demand payment of the full tax owed.

Do I owe excise tax if I sell to a family member?

It depends on your state and the relationship. Some states exempt transfers between spouses or parents and children. Others do not. Check your state's rules or ask your title company whether your sale qualifies for an exemption before closing.

What if I sell my home and buy another one in the same year?

You owe excise tax on both sales. The tax is tied to each individual transaction, not to your overall real estate activity. Selling one home and buying another means two separate tax events.

Who do I contact if I think the excise tax amount is wrong?

Start with the title company — they calculated the amount and can walk you through the math. If you still think there is an error, contact your county assessor's office or the office that recorded the deed. They can confirm the rate and the calculation.