Pennsylvania PA Realty Transfer Tax and New Home Construction Brochure

PA Realty Transfer Tax and New Home Construction Brochure
Brochure: PA Realty Transfer Tax & New Home Construction (REV-618)
CONTACT INFORMATION
real estate as well as the consideration paid for
the model home.
My real estate agent introduced me to a
builder and even helped me arrange
financing for the real estate and the
construction of a home. How is PA realty
transfer tax calculated in that situation?
The value of the construction agreement will only
be subject to PA realty transfer tax if there is an
affiliation between the builder and the seller of
the real estate.
What about a construction mortgage?
The existence of a construction mortgage at the
time settlement is held on the real estate is
presumed by the department to mean a
construction contract has been executed.

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PA REALTY TRANSFER
TAX & NEW HOME
CONSTRUCTION

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Pennsylvania realty transfer tax is imposed at a
rate of 1 percent on the value of real estate
(including contracted-for improvements to
property) transferred by deed, instrument,
long-term lease or other writing. Both grantor
and grantee are held jointly and severally liable
for payment of the tax.

www.revenue.pa.gov

REV-618 PO (04-15)

When is realty transfer tax due?
The 1 percent state realty transfer tax is generally
due when a document that transfers title to real
estate (as defined by 72 PS Section 8101-C of the
Pennsylvania Code) is filed with the County
Recorder of Deeds. Its payment is evidenced by a
stamp or impression affixed to the document.
A local realty transfer tax of 1 percent (in some
localities more) is also due.
I’ve heard that, under certain circumstances,
the value of a construction contract is subject
to PA realty transfer tax. What are those
circumstances?
The value of an executory construction contract for
permanent improvements to real estate is subject
to PA realty transfer tax when both of the following
conditions apply:
(1) The construction contract is effective prior to or
contemporaneously with the transfer of the title to
the real estate; and

or by agreement. Examples where there is an
agreement that causes affiliation include the
following:

What if I enter into a construction contract
where the builder and the seller of the real
estate are not affiliated?

(1) An existing contract for the construction of a
home between the owner and the builder that
is assigned to the purchaser of the real estate;

If there is no affiliation between a builder and the
owner, PA realty transfer tax is not due on the
value of an executory construction agreement,
even if the construction contract is executed prior
to the transfer of the real estate.

(2) Options to purchase or buy real estate given
by the real estate owner to the builder;
(3) Rights of first refusal to buy real estate given
by the lot owner to the builder;
(4) Outright sales agreements for real estate
given by the real estate owner to the builder;
(5) A contract designating the builder as the only
builder that can build houses on the owner's
real estate;
(6) An agency agreement whereby the owner acts
as an agent for the builder in selling the real
estate to a purchaser;

Who is responsible for the payment of PA
realty transfer tax when there is an
executory construction contract: the buyer or
the owner of the real estate?
Both. PA realty transfer tax is a joint and several
liability of both the seller and purchaser. Persons
involved in a real estate transaction can enter into
an agreement to split the realty transfer tax
between the parties any way they like by private
agreement; however, the Department of Revenue
is not bound by this private agreement.
If an executory construction contract
is subject to PA realty transfer tax, why is
the builder not also responsible for the
payment of the tax?

(2) The seller/developer and the builder are
affiliated in some way.

(7) An agency agreement whereby the builder
acts as an agent for the owner who is selling
the real estate to the purchaser; and

The value of the construction contract is taxable
whether or not construction has started at the time
of settlement on the real estate.

(8) A partnership or joint venture agreement
between the builder and the owner to develop
the real estate.

What is an executory construction contract?

Examples where common ownership between the
owner of real estate and the builder may cause
affiliation include, but are not limited to the
following:

The builder can only be held liable to the
Department of Revenue for the tax on an
executory construction contract if the builder is a
party to the deed transferring title to the real
estate. A buyer of real estate legally could require
a builder to pay a portion of any PA realty transfer
tax under a private agreement.

(1) The real estate owner or his close relative is a
shareholder or a partner with the builder;

How is PA realty transfer tax calculated if I
purchase a "model home”?

(2) The builder or his close relative is a
shareholder or a partner with the owner;

A model home is usually one built by a builder on
real estate in a development as part of the
marketing of the development. In many cases the
builder will remain the owner of the model home.
The builder's ownership of the improvement does
not change the fact that the model home is real
estate. Consequently, PA realty transfer tax is
calculated based on the consideration paid for the

An executory contract is a legally enforceable
agreement where some or all of the terms of the
agreement have yet to be performed. Therefore,
an executory construction contract is an
agreement for the construction of improvements
to real estate where the construction has not yet
begun or has not been fully completed.
How can a real estate owner and a builder be
"affiliated" so that the value of an executory
construction contract is subject to PA realty
transfer tax?
An affiliation between the real estate owner and
the builder can be created by common ownership

(3) The owner and builder are owned in whole or
in part by the same individuals or entities; and
(4) The same individual is a common owner,
officer or employee acting as an agent for
both the owner (developer) and the builder.
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