What Is the Mortgage Tax?

The mortgage tax, also called the mortgage recording tax, is a one-time state or local tax charged on the amount of your loan when the mortgage is recorded at closing. Only some states charge it. Rates range from 0.10% of the loan in Oklahoma to 2.05% or more in New York City, where the lender pays 0.25% of that. It is separate from your yearly property tax and has nothing to do with the mortgage interest deduction, and on a home you live in, it is not deductible.

Which states charge a mortgage tax?

These are the main state taxes on recording a home mortgage, with the borrower's share on a $300,000 loan. Rates are per $100 of loan amount unless noted.

New York's tax has several parts. The state basic tax is $0.50 per $100. The special additional tax is $0.25 per $100, and on a home with up to six units the lender must pay it and cannot pass it to you. The additional tax is $0.30 per $100 in New York City and its commuter counties ($0.25 elsewhere where it applies), and on a one- or two-family home the first $10,000 of the loan is excluded from it. New York City adds its own tax of $1.00 per $100 on loans under $500,000, or $1.125 on loans of $500,000 or more for one- to three-family homes and condos. Some counties and cities, such as Westchester County and Yonkers, add a local tax.

How do you calculate the mortgage tax?

1. Start with the loan amount on your Loan Estimate.
2. Count the $100 units (or $500 units in Georgia). States round differently: Alabama and Florida's documentary stamp tax count any fraction as a full $100, and Florida's intangible tax uses the exact amount.
3. Take out any excluded amount first, such as New York's $10,000 on the additional tax for one- or two-family homes or Tennessee's first $2,000. These reduce the loan amount that is taxed, not the tax.
4. Multiply by the rate per $100 for each part of the tax.
5. Remove any part the lender must pay, such as New York's special additional tax.

Example: a $600,000 loan on a one-family house in Queens.

• New York City tax: $600,000 x 1.125% = $6,750
• State basic tax: $600,000 x 0.50% = $3,000
• Additional tax: ($600,000 minus $10,000) x 0.30% = $1,770
• Your total: $11,520. The lender pays the special additional tax of $1,500 ($600,000 x 0.25%).

Example: a $350,000 loan in Florida.

• Documentary stamp tax: 3,500 x $0.35 = $1,225
• Intangible tax: 3,500 x $0.20 = $700
• Total: $1,925

These taxes appear with the other government charges in your closing costs. The rate is set by law, so you cannot shop for a lower one the way you can for some services; see which closing costs are negotiable for the ones you can.

Who pays it at closing?

State law decides. The tax is collected when the mortgage is recorded, so it is settled at closing along with your other closing costs. Two rules shift part of it to the lender:

• New York: the lender pays the special additional tax on homes with up to six units. You pay the rest.
• Georgia: the state's rules make the intangible recording tax due from the note holder, which is your lender. Ask whether the lender charges it to you at closing.

Compare the tax line on your Loan Estimate with the rate for your county. If the figure looks high, ask the lender which parts of the tax it included.

Is the mortgage tax deductible?

Not on a home you live in. It is not a deductible real estate tax, which the IRS defines as a tax on the value of real property assessed at a uniform rate across the community; the mortgage tax is based on your loan amount. IRS Publication 530 says the only settlement costs you can deduct are mortgage interest and certain real estate taxes. It also does not go into your home's basis, which is your cost for figuring taxable gain when you sell. The IRS adds to basis only fees you would have paid buying with cash, such as recording fees and transfer taxes on the deed, and treats charges connected with getting a mortgage as neither deductible nor part of basis. For the closing costs you can deduct, see mortgage costs you can deduct besides interest.

How can you lower the mortgage tax on a refinance?

A refinance can be taxed on the full new loan amount unless it qualifies for state relief. New York, Virginia, Georgia, and Florida offer ways to reduce that tax.

New York: CEMA. In a refinance often called a CEMA (consolidation, extension, and modification agreement), your current lender assigns the existing mortgage to the new lender instead of it being paid off, and the new lender consolidates it with a mortgage for any new money. Under Tax Law section 255, as the Tax Department applied it in Advisory Opinion TSB-A-10(3)R, tax is due only on the amount above the unpaid balance of the assigned mortgage. Your current lender must agree to the assignment, and the assignment and consolidation add documents to the closing, so ask both lenders early what a CEMA will cost and compare that with the tax saved.

• Example: You owe $400,000 and refinance into a $450,000 loan in Nassau County, where your share is about 0.80%. Without a CEMA, tax on $450,000 is about $3,600. With a CEMA, tax on the $50,000 of new money is about $400, before the $10,000 exclusion.

Virginia: reduced refinance rate. A deed of trust that refinances a loan already taxed in Virginia pays $0.18 per $100 instead of $0.25, and the deed must list where the original deed of trust was recorded. On a $300,000 refinance, the state tax is $540, or $720 with the local tax. A modification of an existing deed of trust is taxed only on any increase above the original amount secured on which tax was paid.

Florida: qualifying refinances and modifications. When previously taxed debt is refinanced with the original lender or its assignee (the lender that acquired the loan), intangible tax applies only to the amount above the unpaid principal plus accrued unpaid interest, provided you remain liable for the new loan. A refinance that qualifies as a renewal can also avoid documentary stamp tax on the existing unpaid principal if it keeps the original borrowers and meets the documentation requirements linking the debts and showing prior tax payment. Ask your lender which exemptions apply and how much of each tax a refinance or modification would trigger.

Georgia: same lender. If the lender that made your original loan still owns it and refinances it for you, the unpaid principal being refinanced is exempt from the intangible recording tax, and you pay only on new money. The new security deed or an attached affidavit must state how much of the loan is a refinance. On a $300,000 refinance of a $250,000 balance, the tax is $150 on the $50,000 of new money instead of $900. A refinance with a different lender is taxed on the full amount.

Other refinance costs, and how to decide whether a refinance pays off, are covered in the costs and fees of refinancing. The full list of homeowner tax rules is in tax benefits available to homeowners.