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Gerry Clinchy
01-12-2010, 03:07 PM
The Agreement of Sale for the sale of real estate in Pennsylvania has just been revised yet again. They tell us they haven't finished all the intended revisions yet, but today our office had a "training class" led by an attorney.

In PA there is a 2% transfer tax on real estate. Customarily it is split 50/50 between the buyer and the seller.

Sometimes an agreement is "assigned" by the buyer prior to the settlement. This can happen when an individual decides to set up an LLC (limited liability corporation) for their real estate holdings. It also can occur more often in large commercial transactions.

There is now a new line in the Agreements saying that (paraphrasing) additional transfer taxes may be due if an agreement is assigned. Yup, they'll make you pay the 2% tax twice on one transaction.

Seems that PA revenue from transfer taxes has decreased a lot since the real estate bubble burst. The bureaucrats came up with the idea that they should charge the transfer tax on the assignment of the agreement, as well as the actual sale of the property. Evidently, the law that created the transfer tax has a loophole in it that will allow this to be done.

It becomes a bit inconvenient, since you won't really know if you will have to pay the extra tax until after the bureaucrats have reviewed the file. After settlement, they can request the entire file from the settlement agent so that they can determine if a double tax is due.

The attorney says that the way to avoid this is to void the original agreement, and rewrite a new agreement with the actual name of the ultimate purchaser ... so that no assignment will be involved.