Do I pay transfer tax when selling an inherited house in Pennsylvania?

A house can change hands in two ways after a death. It can pass to an heir, or the estate can sell it to a buyer. The Pennsylvania Department of Revenue says property passed by testate or intestate succession is exempt from the state realty transfer tax. That exemption is for the passing of title through succession. A sale to a buyer is a different transaction.

The City of Philadelphia says family transfers are generally exempt, including between spouses, direct ascendants and descendants, and siblings, with documentation required. It says properties transferred by will may qualify, but transfer tax is due if mortgages, liens or debts on the property are not paid at closing. It also says estate sales do not qualify as exempt. The City's rate is 4.578 percent, combining 3.578 percent city and 1 percent Commonwealth tax.

If the estate sells the house to a buyer, plan on transfer tax, split under the sales contract. If the house is being deeded to a family member, ask whether the exemption applies and what proof the Recorder of Deeds needs. Because the stakes are high, have the estate attorney or the title company review the deed type before it is recorded. Families sometimes deed the house to one heir first so that heir can sell, hoping to avoid tax on the sale. It rarely works that way. The later sale to a buyer is its own transaction and is taxed on its own. Meanwhile, the extra deed adds cost and paperwork, and it may create other problems. Ask the estate attorney whether the estate should sell directly. In many cases it is the cleaner path, and the tax outcome is the same.

Keep the paperwork that proves how the house passed. That includes the death certificate, the will or proof of intestacy, the letters from the Register of Wills, the deed, and any payoff letters for mortgages or liens. The City of Philadelphia says documentation is required for family transfers, so a missing paper can cost you the exemption. Ask the title company or attorney for a list of what the Recorder of Deeds will accept in your county. Make copies for every heir, and keep them with the estate file. If something is missing, ask the office that issued it how to get a replacement.

Kaizen Home Buyers buys inherited houses as-is for cash, with no repairs and no agent commission. We make an offer within 24 hours and can close in 14 to 30 days or on the date that works for the estate. Call 267-329-0084. Listing with an agent is also an option. In both cases, ask who is paying the transfer tax.