BDO Secures 42% Decrease in Real Estate Transfer Tax Owed

BDO helped an East Coast real estate investment trust understand the real estate transfer tax implications during the closing process of a large REIT acquisition, resulting in a significant reduction in tax owed.

Top 3 Areas of Impact

  • Original tax analysis was determined to be incorrect
  • Tax was found to apply in only one of three states at issue
  • Escrow amount for tax reduced by approximately $700,000

The Challenge

The company was closing a large acquisition of another REIT and was unaware of the real estate transfer tax implications in connection with the acquisition. However, the company’s title insurance company was requiring an escrow of $1.2 million for real estate transfer taxes in three states with controlling interest transfer tax provisions.

Our Recommendations

Leveraging BDO’s expertise in the real estate transfer tax space, we provided consulting services in connection with the acquisition to determine whether the title insurance company’s application of the controlling interest transfer tax provisions was reasonable and correct. We also provided compliance services to claim an applicable exemption in one jurisdiction.

Results/Financial Impact

After researching and analyzing the controlling interest transfer tax provisions, BDO determined the tax was not applicable and/or the transaction was subject to an exemption in two of the three states at issue. As a result, we were able to reduce the client’s escrow amount, and ultimate payment of the real estate transfer tax, by approximately $700,000, a savings of 42%.

“Focusing on real estate transfer tax allows me to provide specialized consulting and compliance services to clients on a national scale whenever real estate is transferred, whether directly (i.e., via deed) or indirectly (via a transfer of a legal entity). By understanding and applying these complicated and often vague provisions to each transaction, I’m able to identify significant savings and/or avoid costly traps for my clients.”

Jon Espinola
State & Local Tax Managing Director

The complex rules and compliance burdens associated with real estate transfer tax can be costly. Let BDO help you navigate these issues.