The Pennsylvania Realty Transfer Tax is a documentary stamp tax on the value of any interest in real property transferred by deed. The dollars can be daunting, especially in Philadelphia, where the combined rate is 4% of the value transferred. The tax also applies to the sale of a “real estate company,” which is generally defined as an entity that owns real estate as its primary business asset. It is hard to argue that the value of a real estate company is other than the arms-length negotiated price for the ownership interests. However, both Pennsylvania and Philadelphia (which has its own statute and regulations) allow taxpayers to use the assessed value of the real estate owned by the real estate company to compute the transfer tax. The assessed value is usually considerably less than the purchase price. Most purchasers prefer not to take on potential liabilities associated with an existing entity but the tax savings make it worth considering.
Christine A. Reuther is a shareholder at McCausland Keen & Buckman, where she represents clients in a variety of tax and business matters. For more information, contact Christine at creuther@mkbattorneys.com
The views expressed here do not constitute legal advice; parties to real estate transactions should seek legal counsel.
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