Documentary Transfer Tax

Buyer Smith purchases a new home from Seller Jones for $200,000. Buyer Smith assumes seller Jones’ existing loan of $180,000 and pays $20,000 in cash. What will the documentary transfer tax be?

  1. $22
  2. $11
  3. $220
  4. $198

The tricky part here is that when a buyer assumes the seller’s loan the amount of the loan is exempt from the DTT. So, the tax is only computed on the equity amount – where the equity in this case is the difference between the selling price and the amount of the loan, which is $20,000.

You’ll also need to remember that the DTT is $1.10 for every $1,000 transferred. Since $20,000 is transferred, the DTT is calculated like this: ($20,000/$1,000)($1.10), which is $22. Thus, the answer is A, $22.