Gifting a Home; Is there Transfer Tax on That?

When gifting property, make sure you look closely at what is being transferred.  Some transfers require a tax payment to the state of roughly 1.5 percent of the sale price.  Much of Washington State is funded through taxes to the consumer; this State has comparatively high retail and property tax and of course operates without a state-based income tax.

A gift of a property is fully exempt from tax under the Washington Administrative Code.  WA WAC 458-61A-201(1) states that “Generally, a gift of real property is not a sale, and is not subject to the real estate excise tax. A gift of real property is a transfer for which there is no consideration given in return for granting an interest in the property.”  That WAC should be cited in the Real Estate Excise Tax (“REET”) affidavit if your transaction is a gift.  If a gift, you must file the gift affidavit with the REET.  There are few questions in the gift affidavit that your case might not perfectly into, but, after one, two, or three submissions to the recorder’s (or hopefully just one), you will be in great shape and your transaction will be properly recorded and the tax burden will have been properly satisfied.

If the transaction is a gift, but, there is still a mortgage on the property that was gifted, then, you must pay excise tax on the amount of the mortgage, provided that the grantee (let’s say daughter) will assume and pay off the mortgage.[i]  If the grantor (let’s say “Mom”) will continue to pay off the entire debt on the property, no excise/transfer tax is due.[ii]  This is where you might stumble on the gift affidavit; what if Mom commits to pay half of the mortgage, and, daughter commits to pay the other half?  There are only check boxes on the gift affidavit for either Mom pays 100% of the existing mortgage, or, daughter pays 100% of the existing mortgage.

There is a way to handle this which is to identify in the REET itself the amount of the debt that daughter is taking over, and, pay tax on that amount.

Please Note: The information in this blog/website is provided to further the reader’s research only, and, is not a substitute for consulting with an attorney licensed in your jurisdiction. No attorney-client relationship is formed by virtue of this blog or website nor should any such relationship be implied.

[i] WA WAC 458-61A-201(3) “Assumption of Debt.”

[ii] WA WAC 458-61A-201(6)(c)(i) “Existing Debt.”


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