I was told by someone that the city charges a tax on the sale of a house. So if I sell my house for $1.5M and with my commissions and mortgage my escrow works out to $1.5M on the nose, do I still pay the tax and drive myself into a short sale? In other words, where is it in priority to paying the notes? Before or after?
Does bankruptcy have any protection from this usurping tax?
The transfer tax is paid upon recordation of the deed. If there is not enough money to pay the tax, the deed wil not record and the sale will not go through, The escrow company or your broker will figure the tax as part of an estimated closing costs. If your total payoffs and closing costs, including transfer tax, exceeds the sale price, you wil have to either (1) negotiate a short sale, (2) get the brokers to pay the shortfall, (3) increase the sale price, (4) add cash to the deal, or (5) not sell.
Bankruptcy? No. If you decide to sell, see above. Bankruptcy will discharge debts you already owe, and if you close the escrow as per above, there is no debt to discharge relating to the transfer tax - you already paid it.
Richard A. Rodgers, Esq.
200 N. Westlake Blvd. Ste 201
Westlake Village, CA 91362
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Attorney Rodgers is correct. You should contact your broker or escrow company to ensure that the taxes were included in the sale price.
The information provided is for informational purposes only and no attorney-client relationship has been formed. Attorney Kerriann Sheppard is the Managing Attorney of the Law Offices of Sheppard & Associates, a Taxation Law Firm specializing in helping taxpayers nationwide resolve their IRS back taxes and restoring peace of mind. Call (800)935-9609 for a Free Initial Consultation Today!
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