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Under proposed regulations issued in November 2018, the Washington State real estate excise tax on the transfer of property would apply to the amount of debt assumed by the grantee whether or not the grantor was personally liable on the debt.
Under current Washington state law, a transfer of real property subject to an underlying debt is not subject to real estate excise tax, to the extent the grantor has no personal liability for the debt. For example, if an individual sells property encumbered by a debt of $200,000 for $100,000 plus assumption by the buyer of the debt, the transfer tax only applies to the $100,000 of cash consideration if the debt assumed is secured by the property but is not a personal liability of the seller.
The proposed regulation would change that rule, so that the consideration for transfer tax purposes is the full $300,000.
Whether or not the proposed regulation will be adopted is unclear.
If the proposed regulation is adopted, it will dramatically increase the real estate transfer tax on some transactions. Although borrowers for home mortgages are typically personally liable for the mortgage, that is not always the case, and the proposed regulation could affect the cost of some home sales.
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