A bill introduced in the state House of Representatives would reduce taxes paid due to the sale of a home by 25%.
Introduced by Rep. Bill Bush, D-Dover, House Bill 358 would enact something Rep. Mike Ramone, R-Pike Creek South, has been preaching for years: lowering the cost of the real estate transfer tax of Delaware after its increase during financially difficult years.
The real estate transfer tax is levied on the purchase price of the house and is generally shared between the buyer and the seller, unless otherwise negotiated.
“Right now, in most cases, Delaware has a 4% functional property transfer tax,” said Rep. Kevin Hensley, R-Townsend, who works in real estate. “Typically, this cost is shared between buyer and seller. However, in today’s competitive real estate market, potential buyers often pay the full tax to convince sellers to accept their offers.
In 2017, the Delaware real estate transfer tax was effectively increased from 3% to the current level of 4%. This decision was made as part of a revenue-generating program aimed at filling a large budget deficit.
“This property transfer tax hike was supposed to expire two years after it was imposed, and that was three years ago,” Ramone said.
A member of the Joint Finance Committee responsible for drafting the budget, he is one of the sponsors of Bill 358.
The decision to cut the tax comes after two years of raging sales in the housing market, resulting in windfall tax revenues for state and local governments. The market is also facing interest rate hikes, with the Federal Reserve saying it will raise base borrowing rates repeatedly, in part to slow inflation in an overheated economy.
This has some real estate experts expecting a slowdown in sales, in part due to the lack of new homes.
Revenue from the 4% real estate transfer tax is split between state and local governments.
The state currently receives 62.5% of revenue, with the local presiding government collecting the remaining 37.5%.
The new bipartisan bill would reverse the state’s 2017 tax hike, restoring the effective combined real estate transfer tax to 3%.
Under the measure, only the share of state revenue would be affected. Revenue paid to local governments from home sales would remain unchanged.
“Our high property transfer tax is impacting two groups who can least afford it – millennials and seniors,” Ramone said. “If we can do something to make home ownership easier for young people while giving our older citizens a less costly opportunity to gracefully transition into their golden years, I think we have an obligation to do so. To do.”
According to Long & Foster Real Estate, the median price for a home sold in Delaware in February was $335,000.
HB 358 would reduce the transaction cost for the sale of such a home by almost $3,400.
Based on the latest estimates from the Delaware Economic and Financial Advisory Board, HB 358 would allow buyers and sellers to collectively retain more than $100 million per year.
Ramone stressed that he believed the tax cut was both responsible and sustainable. Delaware’s surplus revenue is expected to top $1 billion for the second year in a row.
So far, 13 Democrats and 15 Republicans are sponsoring or co-sponsoring the measure.
The bill is pending action in the House Administration Committee.
If passed, the tax cut will come into effect on July 1.