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Which Transfers Require Payment of a Real Estate Transfer Tax?
Each county in Nevada charges a Real Estate Transfer Tax when title to property is changed unless one of the exceptions set forth in N.R.S. 375.090 applies. Although the statute lists 13 exceptions, our practice deals primarily with five exceptions.
The first major exception in our practice is N.R.S. 375.090(7) which is for transfer into or out of a trust without consideration and with proof of the trust. Typically the County Recorder wants to see a Certificate of Trust (to which it may be necessary to add the magic words, "This Trust has not been revoked or amended,") or wants to see the actual trust if it is not too long. BUT WE have mixed results in certain cases where the transfer into a trust effectively changes ownership. If Mary transfer her real estate into a trust owned only by Mary, there is no problem. But if Mary sets up a trust with her boyfriend Bill and transfer real estate solely owned by her into a trust jointly owned by her and Bill, it is unclear whether the County Recorder will demand a real estate transfer tax because Mary if really transferring a half interest to Bill, or whether the County Recorder will accept this an estate planning into a Trust which qualifies for Exemption 7.
The second major exemption in our practice is that there is no real estate transfer tax due if the transfer is between parent and child or between husband and wife. If the property is valuable and the transfer is between siblings and a parent is still alive, it may be possible to avoid the real estate transfer tax by transferring from sibling to parent and then back to the other sibling. If the transfer is between parent and child and the two have different surnames (last names) the County Recorder will want to see proof of the actual parent child relationship by being shown copies of marriage licenses, birth certificates, name change orders, etc.The Recorder's Office may refuse to accept photocopies of these documents and demand certified copies. However, if the Probate Court Order awarding the property to the adult children of Decedent where the parent and children have different last names, SPECIFICALLY MAKES A FINDING THAT THIS IS A TRANSFER BETWEEN PARENT AND CHILD, that may be sufficient to avoid the real estate transfer tax and to avoid the production of birth certificates, marriage certificates etc. to prove a parent child relationship.
A third major exception which you will not find by a literal reading of the statutes is that in Clark County property transferred by a Will is not subject to a real estate transfer tax. Usually, claiming exemption Number 3 of the Declaration of Value form when recording a Probate Court Order saying the transfer is pursuant to Will suffices to avoid the transfer tax.
Currently the Recorder's Office is also exempting from the transfer tax property transferred pursuant to a Will and Re-Assignments. For example, Aunt wills her house in equal shares to her 3 adult nieces, April, Betty and Cynthia. April wants the house and agrees with Betty and Cynthia to pay them for their share or to allow them to have equivalent value out of cash assets of Aunt's estate. Betty and Cynthia executes what are called "Re-Assigments" saying that they Re-Assign their share of the house to April. The Probate Court Order says that April is awarded the house pursuant to a Will and Re-Assignments. Currently, no transfer tax is due in Clark County. (In this example, if it was Mom who was leaving the house to April, Betty and Cynthia, then April could also use exemption 5 (transfer from parent to child) to avoid the real estate transfer tax.)
A fourth major exception is that under N.R.S. 375.090(10) there is no tax due if the transfer is to file a deed that becomes effective upon the grantor's death. In some situations, for example, Mom and Dad own a home and financial accounts, and they have only one adult child and they really don't care what happens to their assets if their single child fails to survive both of them, the simplest estate plan may be a transfer on death deed from Mom and Dad to the adult child and making the adult child the payable on death beneficiary of all of their accounts. However, this exception applies to the recording of the deed that says the property will go the grantee upon the grantor's death. And for this deed to work, the recording must occur before the grantor dies. However, after the grantor dies, the grantee will need to file a "Death of Grantor Affidavit." When this filed the County Recorder seek a real estate transfer tax unless the transfer is between spouses or between parent and child. This estate planning device has become more troublesome in recent years as some title insurance companies won't issue title insurance until a year has passed after the death of a Grantor of a Transfer on Death deed.
The final major exception in our practice is that no transfer tax due if one joint tenant or tenant in common transfer his or her interest to another one without consideration. This typically happens when one of two joint tenants dies and the remaining joint tenant automatically becomes the sole owner. See N.R.S. 375.090(4).
BUT if one person transfers real estate to himself or herself plus another person or two AS JOINT TENANTS there is real estate transfer tax due on the entire value of the property unless the transfer is between spouses or parent and child. If a person transfers real estate from himself or herself to another person or persons as TENANTS IN COMMON and the transfer is not between spouses or parent and child, then there is a real estate transfer tax due on the fractional interest going from the grantor to the grantees.
Legal Avoidance of Real Estate Transfer Tax:
A sibling to sibling (brother or sister to sister or brother) transfer is not exempt from the real estate transfer tax. However, if the siblings still have a living parent, the sibling owner can transfer to the parent who can then transfer to the other sibling. Both of these transfers avoid the Real Estate Transfer Tax. This is allowed. Instead of paying the real estate transfer tax, this procedure will involve preparing and recording an additional deed. One of our attorneys has received an e-mail from the Clark County Government Audit Team that this procedure is perfectly ok. But, possibly the I.R.S. could see the transfer as a gift subject to gift tax, so you might want to check with your federal tax advisor before using this tactic.
Also, as mentioned above, if an heir who is not a child, or parent, or spouse of the decedent is to inherit under the laws providing for what happens when there is no will, it may be possible to have the heir assign the inheritance to a trust in the heir's name.
Real Estate Transfer Tax on Fractional Interests:
(Warning: This Section is more technical than the rest of this page)
Suppose Dad dies unmarried and without a will and had three sons. Albert, Bill and Charlie. Suppose Charlie predeceased Dad but is survived by his adult son, David. Suppose the only asset in Dad's estate is a house. Albert, Bill and David are entitled to equal shares. Suppose the three of them decide to keep the house and use it as a rental, betting on a future increase in price. If Dad had willed the house to the three of them there would be no transfer tax. But since there was no will, the third going to David, Dad's grandchild, has a real estate transfer tax, whereas the two thirds going to Albert and Bill, Dad's children, is free of real estate transfer tax.
Now here is where it gets complicated. If the probate court order awarding the house to Albert, Bill and David awards it to them as tenants in common (which is what the Court will do in the absence of a proper request), then David pays a real estate transfer tax on his 1/3 interest. But if David were to die shortly thereafter, his 1/3 tenant in common interest would have to be probated. So, suppose all three ask the Court to award the house to them as joint tenants, so if one dies, the survivors own the house without probate. Now, the county assessor will want a real transfer tax on the entire value because the grandson of the decedent, who does not get an exemption without a will, is considered to have an undivided interest in the whole house. (To save transfer tax, the three could have the Court award the house to three as tenants in common, David would pay a transfer tax on his third, and then the three could deed from themselves as tenants in common to joint tenants and this last transfer would be tax-free because of the identity of grantors and sellers.)
Here is another complicated situation. There is an LLC (Limited Liability Corporation) set up to hold real estate investments. Sue is a 51% member and Mary is a 49% member. Sue buys an investment property and takes title in her name alone. Now she wants to transfer it to the LLC. There will be a real estate transfer tax on the full value of the property because the LLC owners have an undivided interest and there is no identity of ownership between Sue as owner of the property and Sue and Mary as owners of the LLC. But Sue can transfer a 49% interest to Mary. There will be a real estate transfer tax on the 49% interest transferred. Then Sue (now owning a 51% interest) and Mary (now owning a 49% interest) can transfer to the LLC (owned 51% by Sue and 49% by Mary) without a real estate transfer tax.
How is the Real Transfer Tax Calculated?
The transfer tax for all counties except Clark, Washoe and Churchill Counties is $1.95 for each $500 of value or fraction thereof if the value is over $100. For Clark County which includes Las Vegas, North Las Vegas, Henderson, Boulder City and Mesquite, the tax is as above except the amount is $2.55 instead of $1.95 for each $500 of value or fraction thereof if the value is over $100. For Washoe and Churchill Counties the tax amount is $2.05 for each $500 of value or fraction thereof if the value is over $100. For example, in Clark County the transfer tax on real estate which sold for $50,050 would be 100 times $2.55 or $255. If the real estate sold for $50,120, the transfer tax would be 101 times $2.55 or $257.55.
If there is an actual sale, the tax will be calculated on the sales price. If there is no sale, the tax will be calculated on the assessed taxable value. The assessor's office publishes on its public website the taxable value of just about every item of real estate except timeshares. The calculation of the taxable value of an individual timeshare has to be done by someone in the assessor's office taking the taxable value of the whole property and dividing it by the interest the timeshare represents, or, in the case of a timeshare, an estimate might be accepted.