What is a transfer tax?

A transfer tax is indeed defined as a tax stamp required on a deed. This fee is typically imposed by state or local governments when real property changes ownership. The tax is often calculated based on the sales price of the property and must be paid before the property transaction can be legally recorded. The purpose of this tax is to generate revenue for government services and infrastructure, and it can vary significantly depending on the jurisdiction.

When a deed is recorded to officially signify a change in ownership, the presence of the tax stamp serves as proof that the transfer tax has been paid, allowing the transaction to be completed legally. Understanding this mechanism is crucial for real estate transactions, as it directly affects both sellers and buyers in terms of costs associated with property ownership transfer.