Have you ever seen a deed that lists $1 as the price paid for a property? It’s not a typo, and it’s not usually about dodging transfer tax. Here’s what’s actually going on.
Why $1?
To legally pass ownership rights, a deed needs “consideration” — some stated exchange of value. A $1 (or $10) sale price often shows up because the transfer was really a:
- Gift
- Divorce settlement
- Settlement of an estate
- Transfer by an investor moving a property from one entity to another
If you’re purchasing real estate and would prefer to shield the sale price from easy public view, you can request that the deed state $1. When a deed is recorded without the actual sale price, a state form (in Pennsylvania, REV-183) must be attached showing the amount transfer tax is being calculated on — so it won’t keep the price entirely private, but it does make it harder for the general public to see what you paid. If you plan to resell in the near term, a privacy deed can also make it harder for potential buyers to see your original purchase price.
When Is Transfer Tax Due?
Transfer tax typically applies to:
- Transfer of deeds
- Long-term leases (30 or more years)
- Easements
- Life estates
- Entity transfers
- Transfers of interest in a real estate company, where the transfer is 90% or more
In Pennsylvania, some transfers are exempt from tax, including:
- Certain transfers among family members
- Transfers to governmental units
- Transfers between religious organizations
- Transfers to shareholders or partners
- Transfers to or from nonprofit industrial development agencies
- Deeds to burial sites
- Certain transfers of ownership in real estate companies
- Family farms
What About Entity Transfers?
You’ve likely seen sales that look like an arm’s-length transaction — buyer and seller unrelated, no apparent side deal — where the property still doesn’t appear to have sold for fair market value. Pennsylvania law requires transfer tax to be paid on the transfer of 90% or more of a “real estate company” (a company whose primary purpose is owning and operating real estate).
There are examples of large transfers where a master company is sold, along with all its real estate holdings, and transfer tax is reduced by the deal structure. For instance: an integrated property management and real estate investment group decides to sell all its assets and retire. Each property sits in its own LLC, all owned by a master LLC that also owns the property management company. If the master LLC assigns a high value to the management business — say, by charging itself an outsized property management fee to boost that side of the business — the real estate in each individual LLC can then be transferred for less than fair market value, with transfer tax paid on assessment value times the Common Level Ratio. The management business’s book value is purchased without transfer tax being paid at all, which can add up significantly on larger asset sales — and can be one reason you’ll see a transfer recorded for far less than what looks like fair market value.
What About Bartering?
Bartering may be another reason a property gets recorded for $1 or less than fair market price. Bartering is a type of sale involving the exchange of one property for another — and it’s still subject to transfer tax on both properties. Income gained from bartering is also taxable for Pennsylvania personal income tax purposes; that gain is the difference between the adjusted basis of the property given up and the fair market value of the property received.
The Bottom Line
Understanding why a sale might be recorded as $1 can help investors stay on top of the real estate market, correctly interpret transfers, track comparables, and keep a real pulse on property values.
