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LSN-97

Special Notice Concerning Real Estate Conveyance Taxes


This Special Notice is intended to summarize changes made by the 1989 General Assembly to the real estate conveyance taxes.

Public Act 89-251 imposes the State Real Estate Conveyance Tax at several different rates - rather than at the prior uniform rate of forty-five one-hundredths of one percent (0.45%) - as follows:

CONSIDERATION RECEIVED FOR TAXED AT THE RATE OF
Unimproved land One-half of one percent (0.5%)
Residential property (other than a residential dwelling)
One-half of one percent (0.5%)
Nonresidential property (other than unimproved land) One percent (1.0%)
Residential dwelling:
On that portion of the consideration not exceeding $800,000

On that portion of the consideration exceeding $800,000

One-half of one percent (0.5%)

One percent (1.0%)

The Act also imposes the Municipal Real Estate Conveyance Tax at the rate of eleven one-hundredths of one percent (0.11%) - rather than at the rate of $1.10 per $1,000 or fractional part thereof.

Residential dwelling means a single-family dwelling, including a condominium unit or a cooperative unit, whether or not owner-occupied.

Residential property (other than a residential dwelling) means and includes apartment buildings or complexes, duplexes and other multi-unit properties, whether or not the owner resides on the premises.

Unimproved land means land that has never been improved.

Consideration means money paid and the fair market value of property other than money transferred, directly or indirectly, to the seller (grantor), whether or not expressed in the deed, and includes the amount of any liability of the grantor assumed by the buyer (grantee) and the amount of any liability not assumed but to which the land is subject.

Whether property is residential or nonresidential depends on the use to which the property has been devoted by the seller (grantor).

If a portion of the property has been used for residential purposes and the remaining portion has been used for nonresidential purposes, the use to which a preponderance of the square footage has been devoted is the use to which the property is deemed to have been devoted. If the square footage devoted to nonresidential use equals the square footage devoted to residential use, the property is deemed to have been devoted to nonresidential use. In no event may the consideration be allocated or apportioned, with one rate applied to a portion of the consideration and another rate applied to the remainder.

Example 1: An attorney conducts her law practice entirely out of one room of a house that she resides in. She conveys the house to a developer who will renovate it into a commercial office building. It is the use to which the property has been devoted by the grantor that determines the type of property being conveyed. The attorney has used the property for residential and nonresidential purposes; however, 2,000 square feet of the building were used for residential purposes and 400 square feet were used for nonresidential purposes. A preponderance of the square footage of the building has been used for residential purposes. The building is a single-family dwelling - not a multi-unit property - so a conveyance of a residential dwelling has been made. If the dwelling were conveyed for $1.2 million, then the State tax would apply at the rate of 0.5% to the first $800,000 of consideration and at the rate of 1.0% to the remaining $400,000 of consideration.

Example 2: A physician conducts his medical practice entirely out of a house that he resides in. He conveys the house to a developer who will raze it and build condominiums. It is the use to which the property has been devoted by the grantor that determines the type of property being conveyed. The physician has used the property for residential and nonresidential purposes; however, 1,200 square feet of the building were used for nonresidential purposes and 1,000 square feet were used for residential purposes. A preponderance of the square footage of the building has been used for nonresidential purposes. If the house were conveyed for $1.0 million, then the State tax would apply at the rate of 1.0% to the entire $1.0 million of consideration.


LSN-97 (New 9/1/89)