Delaware realty transfer tax: rates, who pays, first-time buyers

How much is the tax, and who levies it?

Delaware taxes the recording of a deed. Under 30 Del. C. § 5402(a), the state rate is 3% of the property’s value. It drops to 2.5% when the municipality or county has enacted the full 1.5% local tax that state law allows. The Division of Revenue’s return uses that structure: line 5 shows a 4.0% combined rate, and line 6 shows 1.5% going to the county or municipality.

Local governments set their own tax, up to a cap:

• Counties may tax transfers only in their unincorporated areas, at no more than 1.5% (9 Del. C. § 8102).
• Municipalities may tax transfers inside their limits, at no more than 1.5% (22 Del. C. § 1601). The ordinance decides whether the buyer or the seller pays the local tax.

So the local layer depends on where the house sits. A home inside the City of Wilmington falls under the city’s ordinance, not the New Castle County ordinance for unincorporated land. Payotte could not read Wilmington’s ordinance for this article, so confirm the city rate and its payer rule with the New Castle County Recorder of Deeds before you sign. See our Wilmington page for local context.

What value is taxed?

The tax applies to the greater of two numbers: the consideration paid (including mortgages and liens) or the highest assessed value for local tax purposes (Form RTT-TAX, lines 2 to 4). The statute allows the parties to show a lower fair market value, and an arm’s-length sale between unrelated parties is enough to show it (30 Del. C. § 5401(4)).

Who pays by law?

The state statute says the tax is “apportioned equally between grantor and grantee” (§ 5402(a)). Another section says that between the parties, absent an agreement to the contrary, the burden of paying the tax is on the grantor (§ 5412). In practice your sales contract allocates the cost, so read that clause. The Division of Revenue’s return asks for the percentage each side bears (line 10).

How do first-time buyers save?

For a transaction on or after August 1, 2017, the grantee’s portion of the state tax is reduced by 0.5% multiplied by the lesser of the value or $400,000 (§ 5402(c)). The reduction applies only to the buyer’s share; it does not relieve the seller of the seller’s share. The credit is claimed on Form RTT-SCH, and it cannot exceed $2,000.

A first-time buyer under 30 Del. C. § 5401(2) must have never held a direct legal interest in residential real estate, anywhere, and must plan to live in the home as a principal residence within 90 days of the transaction (or within 90 days of the certificate of occupancy for a new build). Spouses, and individuals buying as joint tenants or cotenants, qualify only if none of the buyers has ever held such an interest.

The county ordinance rule is separate. A county that taxes transfers must exempt first-time buyers up to the lesser of the value or $400,000 (9 Del. C. § 8102). That rule covers county tax in unincorporated areas. Payotte did not find, in the sources it could read, whether Wilmington’s ordinance gives first-time buyers a city-level break. Ask the Recorder of Deeds, and see first-time buyer programs in Delaware.

Which transfers are exempt?

Section 5401(1) lists the conveyances that are not taxed. Home-related examples include conveyances:

• between spouses, and between former spouses after a final divorce decree;
• between parent and child (and the child’s spouse);
• between siblings, half siblings or step siblings;
• between grandparent and grandchild (and the grandchild’s spouse);
• to a lender holding a bona fide mortgage in default, by a sheriff’s foreclosure sale or by deed in lieu of foreclosure;
• to or from the United States, the State or their agencies and political subdivisions.

Wills, transfer on death deeds and mortgages are not “documents” subject to the tax. The Recorder will accept an exempt deed only with an affidavit that states the reason it is exempt (§ 5409).