Q: I’m buying a home in Naperville, Illinois, and the city requires the buyer to pay a real estate transfer tax.
The buyer fills out a declaration form and submits it along with a copy of the real estate contract, and of course, the money, to get the required “tax stamp” which is needed at the closing.
The declaration form contains a provision to deduct from the sales price the amount of “personal property” included in the deal. The contract I signed lists a fair number of personal property items: refrigerator, oven/range/stove, microwave, central air conditioning, and all tacked down carpeting and planted vegetation.
Is the definition of “personal property” the same under both the city’s declaration and the contract? Also, how can I arrive at a reasonable estimate of the value of “personal property” without incurring much expense or time? My estimate for these items would be about 15 percent of the purchase price.
When I inquired at city hall, they told me that the personal property line item on the declaration has always been zero.
A: If the city’s transfer tax ordinance permits you to exclude from the purchase the value of the personal property included in your purchase, you should be able to do just that. Unfortunately, it is unlikely that the exclusion of most items of personal property left in a home will materially change the amount of tax you would pay.
What the real estate contract claims to be personal property is more than what the city would consider to be personal property. In general and in simple terms, if you can take something from one home to another without damaging the old home, you might be able to call that something personal property. Some contracts include the furnace and hot water heaters in their list of personal property.
For practical purposes, the inclusion of these items is to make sure the seller knows to leave them behind and that you are expecting them to remain. These items tend to be necessary for the proper working of a home and are attached to the home via pipes, wires and other connections. Many people consider these permanently attached items to be fixtures.
Landscaping that is part of a home becomes attached to the land and most people would not conceive of rolling up the lawn and taking it with them. It could happen, but most buyers expect the landscaping to stay.
However, there are certain items that are clearly personal property and can be freely taken by the seller if they are not included in the contract. These items generally include cars that are parked in the garage, television sets on top of dressers, and other electronics that may be unplugged and taken with the former owner.
In some cases the washing machine, clothes dryer and the refrigerator can be taken by an owner and may not be part of the sale.
If you take the list of items that will be left behind of the type that are movable items, you will probably realize that your estimate of 15 percent of the purchase price was probably way too high and in actuality it may be closer to one or two thousand dollars.
If the transfer tax is about $5 or $10 per thousand dollars of sales price, you might save $5 to $20 on the transfer tax. Most people in your community probably have opted to forget about taking the exclusion and pay the tax, particularly if there is additional paper work that the city would need from you to prove the value of the personal property.
In high-end homes where people install home theaters, expensive flat-screen televisions in every room, and sound studios, the value of this equipment can run into the tens of thousand of dollars.
Contracts for the purchase of these homes can and do specify the value for each of these systems and the buyer can show the taxing authority that the seller and buyer allocated a certain amount of the purchase price to the home and a certain amount of the price to the personal property. In this circumstance, the home buyer will save a significant amount of money in the transfer tax by excluding all of these items.
Another example in which a buyer would want to exclude personal property is in case she is buying a furnished home. The seller may include all of the furniture of the home and the buyer and seller may even allocate an amount to the furniture. If they do, the buyer has sound footing to go to the taxing authorities and not pay a real estate transfer tax on the sale of the furniture.
You will need to re-review what you believe is personal property and decide whether it is worth it to claim the exemption. Good luck.
Published: Feb 7, 2006
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