Bill aims to cut real estate transfer tax
From: Delaware Business Times
A new bipartisan bill is seeking to reduce Delaware’s real estate transfer tax by 25%, essentially undoing a state increase from five years ago.
House Bill 358, introduced on March 31 by lead sponsor Rep. Bill Bush (D-Dover), has already garnered 17 House sponsors and 10 Senate sponsors spanning both the Republican and Democratic parties, including both party leaders in the House.
The bill will be first heard in the House Administration Committee, although a hearing has yet to be scheduled. If enacted, the tax cut would take effect July 1.
HB 358 would reduce the state’s portion of real estate transfer tax back to 1.5% from 2.5%, while local jurisdictions would continue to collect 1.5% of a sale’s value. Seeking to close a budget deficit of hundreds of millions of dollars in 2017, legislators raised Delaware’s realty transfer tax from a longtime 3% on most properties to the current 4% with the state collecting the extra percentage point – in rare instances when no local tax is collected, the state collects 3%.
“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,” Rep. Kevin Hensley (R- Odessa), who works in the real estate industry, said in a statement.
Rep. Mike Ramone (R-Pike Creek) said that legislators agreed to raise the transfer tax for only two years to cover the budget gap, but that expiration date wasn’t in the final bill, and it continues to be paid on sales small and large.
“Our high realty transfer tax is impacting two groups that can least afford it – millennials and seniors,” Ramone said in a statement. “If we can do something to both facilitate home ownership 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.”
A decrease in tax revenue would come at a time when Delaware is seeing booming real estate sales. The state’s independent fiscal analysts board, the Delaware Economic and Financial Advisory Council (DEFAC), estimates that Delaware will pull in nearly $300 million this fiscal year from the real estate transfer tax alone, about 25% more than it did last year. That increase has been spurred along by rising property values across the board, but also by a number of high-value sales, including nearly all of the prior decade’s Top 10 sales, that have contributed millions to state coffers on their own.
Delaware has traditionally ranked at or near the top of all states in terms of its real estate transfer tax, a distinction that has led the state’s Board of Realtors to lobby for a reduction for several years. There are 14 states that have no such tax on property sales, while neighboring states like Pennsylvania and Maryland charge 1% or less on a sale.
According to Long & Foster Real Estate, the median price of a home sold in Delaware as of February was $335,000. HB358 would reduce the transaction cost for the sale of such a home by almost $3,400.
Based on the latest estimates from DEFAC, HB358 would allow homebuyers and sellers to collectively retain more than $100 million annually from the tax cut. DEFAC has projected to end the current fiscal year with a budget surplus of nearly $800 million, which has pushed lawmakers to find ways to return those savings to residents.
One bill that has already received bipartisan support will cut checks of $300 per taxpayer as a direct stimulus. Now HB358 appears poised to make the change that real estate agents have been seeking for years.
“As stewards of the American Dream of homeownership, we are excited about the introduction of HB358. This legislation could make that dream a reality for many families throughout the state. Delaware has the highest state-level Realty Transfer Tax in the nation, and while we pride ourselves on being the First State, this is not a ranking that any of us want,” Susan Giove, president of the Delaware Association of Realtors, said in a statement. “The realty transfer tax can become a major obstacle to homeownership because it must be paid in cash at the settlement table in addition to other closing costs. We believe that this legislation will make housing more affordable for all who wish to buy or sell a home and are grateful to all the sponsors for introducing this legislation at a critical time in the current real estate market.”