How Do You Avoid Transfer Tax On A Sub2 Deal?
If you buy a property "sub2" and use a land trust or other vehicle, must the state and local transfer tax still be paid on the sales price? If so, this can equal 4% in Philly, and I would not imagine that the seller would cough up half of it himself. If the transfer tax is avoidable, how is this done?
I was told by an investor in Pitt. that even though you may give the seller $10, $500, or whatever, the least amount you will pay is 4% on the assessed value.
You may want to talk with an attorney in PA about using Land Trust, but to my understanding, your still going to have to pay that 4%.
I think that is one tax you are going to have to live with.
For the most part you have to assume that if you are transferring the title you will have a transfer tax.
Putting a property into a land trust is a transfer. Maybe the present owner can do so without tax (I moved a property in OR into a trust and did not have a transfer tax where if I sold it there would have been such a tax).
John
OK, so if there is a transfer tax to pay, how do some of these RE gurus talk about doing deals without putting money down? Seems to me that if your goal is to do a sub2 then a L/O to a T/B for an option fee, the fee will pretty much be consumed by the transfer tax, depending on where the property is. In PA, it is 2%. In Philly, it is another 2%. Without the seller getting equity cashed out via a new mortgage, it seems like the buyer has to come up with this as real cash.
I'm a newbie, but heard Ron LeGrand talk about this. Here is what I think he said. You basically have the seller put the property into a trust and assign benificial interest in the property to you. When you sell the property, you can just take it out of a trust and sell it that way. I'm pretty sure that is how it was described. A Guru may want to confirm this. JohnLocke?
Here in WA we have a 1.78% tax.
Putting the property into a trust is considered a taxable event and you still have to pay the 1.78%.... Not sure if it’s the same where you are but I thought I would at least point this out.
I just pay it...
I think I heard Bill Gatten to say..(don't hold me on this-check his site or a RE Atty) that you split the beneficial interest 10/90 where it is not considered a complete transfer for the seller still holds beneficiary interest. Consequently, it is not a transfer just yet!
[addsig]
Living in Pa. I have the same problem.A way to pay it can be thru my IRA. It is with Equity Trust. They allow me to note properties. I can make a 2nd note on the property, to the property owner. They agree to sign this, and their U-Haul money and the transfer money can be taken from the 2nd. Get an attorney involved and have him disperse the funds and take his fee from the same 2nd note.
Just a thot
Joe
taking a subject 2house in a land trust is transparent to the IRS and considered a non taxable event in most states .some states may charge a small fee,also the lender can`t call the loan due it`s against Federal law.
Randy