Who Pays the Taxes in North Carolina Real Estate Closing? - Stott, Hollowell, Windham & Stancil, PLLC (2024)

If you are buying or selling a home in North Carolina, you may wonder who pays the taxes at the closing table. Taxes are one of the closing costs that both buyers and sellers have to pay to finalize the transaction. However, not all taxes are the same, and not all taxes are paid by the same party. In this blog post, we will explain the different types of taxes involved in a North Carolina real estate closing, and who is responsible for paying them.

Property taxes

Property taxes are the annual taxes levied by the county and the municipality where the property is located. Property taxes are based on the assessed value of the property and the tax rate of the jurisdiction. Property taxes are paid in arrears, meaning that they are due at the end of the year for the current year.

In North Carolina, property taxes are prorated to the day of closing, meaning that the seller pays the taxes for the period they owned the property, and the buyer pays the taxes for the period they will own the property. The proration is calculated by dividing the annual tax amount by 365 days, and multiplying it by the number of days the seller or the buyer owned the property.

For example, if the annual property tax for a home is $3,000, and the closing date is June 30, the seller pays $1,500 (3,000 / 365 x 182) and the buyer pays $1,500 (3,000 / 365 x 183).

The seller usually pays the property taxes at closing, and the buyer receives a credit for the amount they owe. The buyer then pays the full property tax bill when it is due at the end of the year.

Transfer taxes (“Revenue Stamps”)

Transfer taxes are the taxes charged by the state to record the transfer of ownership of the property. In North Carolina, the state charges an excise tax, also called “revenue stamps”, on every real estate sale. The rate is $1 for every $500 of the sale price.

For example, if the sale price of a home is $300,000, the excise tax is $600 (300,000 / 500 x 1).

The seller is usually responsible for paying the excise tax at closing. However, the buyer and the seller can negotiate who pays the transfer tax, and include it in the purchase agreement.

Income taxes

Income taxes are the taxes paid to the federal and/or the state government on the income earned from the sale of the property. In North Carolina, the seller may have to pay capital gains tax if they sell the property for more than they bought it for, minus the cost of any improvements and selling expenses. The capital gains tax rate depends on the seller’s income tax bracket, and whether they held the property for more than or less than a year.

The seller may be able to exclude some or all of the capital gains from taxation, if they meet certain requirements.

For example, if the seller used the property as their primary residence for at least two of the last five years, they can exclude up to $250,000 of the capital gains if they are single, or up to $500,000 if they are married filing jointly.

The buyer may also have to pay income taxes on the property, depending on how they use it.

For example, if the buyer rents out the property, they have to report the rental income and expenses on their tax return. If the buyer sells the property in the future, they may also have to pay capital gains tax on the profit.

THE BUYER AND THE SELLER SHOULD CONSULT WITH A TAX PROFESSIONAL TO DETERMINE THEIR TAX LIABILITY AND ELIGIBILITY FOR ANY EXCLUSIONS OR DEDUCTIONS.

Conclusion

Taxes are an inevitable part of any real estate transaction, and both buyers and sellers should be aware of them before they enter into a contract. Taxes can vary depending on the location, the sale price, and the use of the property, and they can affect the net proceeds and the affordability of the deal. By understanding who pays the taxes in North Carolina real estate closing, buyers and sellers can plan ahead and avoid any surprises or disputes.

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