Bipartisan bill would cut realty transfer tax by 25%
From: Town Square Live
A bill introduced into the state House of Representatives would cut by 25% the taxes paid because of the sale of a home.
Introduced by Rep. Bill Bush, D-Dover, House Bill 358 would make law of something Rep. Mike Ramone, R-Pike Creek South, has been preaching for years: reducing the cost of Delaware’s real estate transfer tax after it was increased during financially difficult years.
The realty transfer tax is levied on the purchase price of the home and is usually split between the buyer and seller, unless otherwise negotiated.
“Right now, in most cases, Delaware has a functional realty transfer tax of 4%,” said Rep. Kevin Hensley, R-Townsend, who works in the real estate field. “Typically, this cost is split between buyer and seller. However, in the current competitive housing market, prospective buyers are often paying the entire tax to convince sellers to accept their offers.”
In 2017, Delaware’s realty transfer tax was effectively raised from 3% to the present level of 4%. The move was made as part of a revenue-generating package to bridge a major budget gap.
A member of the budget-writing Joint Finance Committee, he is one of the sponsors of House Bill 358.
The move to cut the tax comes after two years of raging sales in the housing market, leading to tax windfalls for state and local governments. The market is also facing rises in interest rates with the Federal Reserve saying it will hike the base borrowing rates several times, partly to slow inflation in an overheated economy.
That has some real estate experts expecting a slow down in sales, partly because of the lack of new housing.
The revenue from the 4% realty transfer tax is split between state and local governments.
The state currently gets 62.5% of the proceeds, with the local presiding government collecting the remaining 37.5%.
The new bipartisan bill would reverse the state’s 2017 tax hike, restoring the effective combined realty transfer tax to 3%.
Under the measure, only the state’s share of the revenue would be impacted. The revenue flowing to local governments from home sales would be unchanged.
“Our high realty transfer tax is impacting two groups that can least afford it – millennials and seniors,” Ramone said. “If we can do something to both facilitate homeownership among young people while giving our older citizens a less costly opportunity to gracefully transition into their golden years, I think we have an obligation to do it.”
According to Long & Foster Real Estate, the median price of a home sold in Delaware as of February was $335,000.
HB 358 would reduce the transaction cost for the sale of such a home by almost $3,400.
Based on the latest estimates from the Delaware Economic and Financial Advisory Council, HB 358 would allow homebuyers and sellers to collectively retain more than $100 million annually.
Ramone stressed that he believes the tax cut is both responsible and sustainable. Delaware’s surplus revenue is expected to exceed $1 billion for the second consecutive year.
So far 13 Democrats and 15 Republicans are sponsoring or co-sponsoring the measure.
The legislation is pending action in the House Administration Committee.
If enacted, the tax cut would take effect July 1.