This gold house: Tax hike hits homebuyers
"Every Virginian is going to get a tax break," promised Governor Mark Warner on a visit to Charlottesville after the General Assembly finally passed a $60-billion, two-year budget May 7.
Those tax breaks won't be so obvious to new homebuyers, who are going to have to cough up hundreds of extra dollars to record their property transfers, especially in an expensive market like Albemarle County, where the median house price was $254,500 last year.
The General Assembly approved bumping the recordation tax from 15 cents to 25 cents per $100 of value. "We stripped it out in the House," says Republican Delegate Rob Bell, but the Senate put it back in. "It was a short-lived victory for people who want to buy a house."
The recording of property transfers adds up. Increasing what a homebuyer pays a mere 10 cents per $100 will generate a total of $224 million for the state General Fund over the next two years, says Democratic Delegate Mitch Van Yahres. Has he heard any complaints about the tax? "All I'm hearing is positive feedback," says the delegate.
Not from Rob Bell. "There are itty bitty taxes. This is not one of them," he says. Besides being part of one the "biggest tax hikes in Virginia," says Bell, "it's supposed to be socially positive for homeownership, i.e., the mortgage interest deduction. This makes it harder to buy a house."
Many Realtors opposed the increase. "We fought it vigorously in the name of trying to keep costs down," says Dave Phillips, CEO of Charlottesville Area Association of Realtors. "There are already seven or eight taxes levied when a deed is recorded."
"We oppose anything that would increase taxes and therefore the affordability– or unaffordabililty– for clients in our area," echoes Jeff Gaffney, CAAR president. "As you know, there's enough challenge in our area for schoolteachers, nurses, and firefighters to buy homes, so we are for anything that will help make real estate affordable for our clients."
For Gaffney, there's only one bright spot in the higher taxes: "It didn't go up to 40 cents per $100 as they originally proposed."
The state's fee is not the only recordation tax. Albemarle County and Charlottesville both tack on another 5 cents per $100, upping the courthouse recordation tax to 30 cents per $100. That put approximately $1.4 million in county coffers last year, estimates Shelby Marshall, Albemarle Clerk of Court. And so far this year, Charlottesville has taken in almost $135,000, according to city Treasurer Jennifer Brown.
"This particular tax is not on every person," says Marshall. "You have to use the circuit court office to pay for the service. It's like going to the doctor or dentist: If you don't use it, you don't pay."
Even sellers pay: $1 per $1,000 in value, with half going to the state, half to the county.
Cheri Lewis of the Closing Company lists the costs of transferring title on a $275,000 house:
- The seller pays the $275.
- To record the deed in the courthouse, the buyer currently pays $550, which will rise to $825, an increase of $275.
- $20 ($1.50 for the Virginia State Legal Fund, a $14.50 clerk's fee that doubles if the deed is more than four pages, $3 for the technology trust fund, and a $1 transfer fee)
- The deed of trust, which is the mortgage recordation. If the buyer gets a $220,000 mortgage, then she also has to pay a tax to record that mortgage as well– currently $440, rising to $660, an increase of $220.
The increase is expected to go into effect September 1. "This little average transaction will cost $500 more after that," says Lewis. "This will hurt people buying property because they're hit on the deed– and then again on the deed of trust."
(Except for the amazing few who pay for property with cash.)
The recordation tax increase doesn't address one type of buyer– typically rich– who purchases big-ticket properties without paying a cent in recording taxes.
That happened in 2001 in Albemarle's largest property transfer. When now-indicted Tyco CFO Mark Swartz bought the historic Enniscorthy estate near Scottsville, he paid at least $17 million to former New York Islanders hockey team owner John Pickett.
Normally, the recordation tax on such a transaction would be around $50,000, according to Marshall. What did Swartz pay? Nada.
The trick? Tax exemptions are available when ownership shifts among partnerships or limited liability companies like Swartz's Sea Ridge LLC, which bought Enniscorthy from Pickett's Enniscorthy LLC and Esmont Farm LP.
"I don't know all the rules on LLCs," says Governor Warner. "That doesn't sound fair. It sounds to me like a corporate loophole that needs to be looked at."
Not all companies dodge the recordation tax. Fluvanna County recently got a $60,777 check from Tenaska when it refinanced its new power generating station. The company paid over $250,000 in mortgage recording fees, of which the Commonwealth took more than $186,000. Lucky for Tenaska, it refinanced before the tax rise hits.
Shortly after the General Assembly wrangling ended, it was reported that Virginia will enjoy a budget surplus without the tax increase. But Warner defends his recent tax plan for eliminating loopholes, raising exemptions, and wiping out the food tax. And the recordation tax, he notes, is "still significantly lower than most neighboring states."
Lewis sees the same thing when processing deeds for newcomers. "People from the North," she says, "are shocked at how little our real estate taxes and recording fees are."
Maybe so, but that's cold comfort to anyone who buys property after September 1.