Every real estate transaction in Pennsylvania involves transfer tax, and it is one of the largest closing costs for both buyers and sellers. Despite this, many people going through their first (or even second or third) real estate closing are surprised by how much the tax is and confused about who pays it. Here is a straightforward explanation of how transfer tax works in Pennsylvania, who is responsible for it, and the exemptions that may apply.
The Basic Rate Structure
Pennsylvania's realty transfer tax has two components:
State transfer tax: 1% of the value of the property being transferred, imposed by the Commonwealth under 72 P.S. Section 8102-C.
Local transfer tax: An additional percentage imposed by the municipality and school district where the property is located. In most communities in Westmoreland, Allegheny, and surrounding counties, the local rate is 1%, bringing the total transfer tax to 2%.
However, the local rate can vary. Some municipalities have opted for a higher local share, while others have a lower one. The total combined rate is almost always 2% in Western Pennsylvania, but you should verify the exact rate for the specific municipality where the property is located.
How the Tax Is Calculated
The transfer tax is calculated based on the "value" of the property, which in most transactions is the sale price. For a property selling for $300,000 with a total 2% transfer tax rate, the transfer tax is $6,000.
For transactions that are not arms-length sales, such as transfers between family members, gifts, or transfers into trusts, the Department of Revenue uses the property's assessed value, multiplied by the common-level ratio factor published annually for each county, to determine the taxable value.
Who Pays: Buyer or Seller?
By custom and practice in Pennsylvania, the transfer tax is split equally between the buyer and the seller. Each party pays 1% of the sale price (assuming the standard 2% total rate). On a $300,000 sale, both the buyer and the seller pay $3,000 each.
This is a custom, not a legal requirement. The parties can negotiate a different split as part of the purchase agreement. In a buyer's market, the seller may agree to pay the entire transfer tax as a concession. In a seller's market, the buyer may agree to absorb more of the cost. The agreement of sale should specify who pays what.
When calculating transfer tax on the settlement statement (HUD-1 or ALTA), the split is itemized so both parties can see exactly what they are paying.
Exemptions From Transfer Tax
Pennsylvania provides several important exemptions from realty transfer tax. Understanding these exemptions can save thousands of dollars in specific situations:
Transfers between spouses. Transfers of real estate between husband and wife are exempt from transfer tax, regardless of whether the transfer is a sale, a gift, or a transfer into joint ownership. This exemption applies during the marriage and also to transfers made pursuant to a divorce settlement.
Transfers between parent and child. Transfers for no consideration (gifts) between a parent and child, including a stepchild or adopted child, are exempt from the state portion of the transfer tax. However, the local portion may still apply depending on the municipality. The exemption does not apply if the child pays consideration (i.e., it is a sale, not a gift).
Transfers to a revocable trust. Transferring property to a revocable living trust where the grantor is the beneficiary is generally exempt from transfer tax, because the grantor retains full beneficial ownership. However, the trust must be structured correctly, and the deed must be properly drafted to claim the exemption.
Transfers incident to divorce. Property transfers between former spouses pursuant to a divorce decree or property settlement agreement are exempt from transfer tax.
Transfers by will or intestacy. When real estate passes to an heir through probate, either under a will or through intestacy, no transfer tax is due at the time of death. Transfer tax is due only when the property is subsequently sold to a third party.
First-time homebuyer exemption (limited). Some municipalities offer a partial transfer tax exemption for first-time homebuyers, but this is not a statewide exemption and availability varies by location.
Practical Examples
Standard residential sale: A home in Murrysville sells for $350,000. The total transfer tax is $7,000 (2%). The buyer pays $3,500 and the seller pays $3,500.
Parent gifting property to child: A father transfers his Greensburg home (assessed value resulting in a computed fair market value of $200,000) to his daughter as a gift. The state transfer tax (1%) is exempt under the parent-child exemption. The local transfer tax (1%) may still apply, resulting in a tax of $2,000 depending on local rules.
Transfer to a living trust: A couple transfers their home into their revocable living trust. No transfer tax is due, because the grantors retain full beneficial ownership of the property through the trust.
Divorce transfer: As part of a divorce settlement, the wife transfers her interest in the marital home to the husband. No transfer tax is due.
Common Mistakes and Pitfalls
Failing to claim available exemptions. We regularly see transactions where an exemption applied but was not claimed on the transfer tax statement, resulting in unnecessary tax payments. Once the tax is paid, obtaining a refund requires filing a petition, which is time-consuming.
Incorrect value for non-arms-length transfers. For transfers between related parties or for nominal consideration, the taxable value is determined by the assessed value multiplied by the common-level ratio factor. Using the wrong factor or failing to apply it correctly can result in an overpayment or an underpayment (which triggers penalties and interest).
Not accounting for transfer tax in purchase negotiations. Buyers and sellers often focus on the purchase price without considering that transfer tax adds 1% to each party's costs. On higher-priced transactions, this is a significant amount that should be factored into the negotiation.
Trust transfers that do not qualify for the exemption. Not all trust transfers are exempt. Transferring property to an irrevocable trust where the grantor gives up beneficial ownership may trigger transfer tax. The trust terms and the deed language must be carefully reviewed.
At Ament Law Group, we handle real estate closings throughout Western Pennsylvania and ensure that our clients never pay more transfer tax than the law requires. If you have questions about transfer tax for an upcoming transaction, call (724) 733-3500 or schedule a consultation.
Related resources:
- Real Estate Settlement Services
- Do I Need a Lawyer for a Real Estate Closing in PA?
- Deed Transfers in Pennsylvania
- Title Insurance Guide for Western PA Homebuyers
- Schedule a Free Consultation
Buying, Selling, or Closing on Property?
Our attorneys are licensed title agents through Chicago Title, Commonwealth, and First American. We handle the title search, issue the policy, and attend your closing — all under attorney supervision, at the same cost as any title company.