Taxes and Fees on Real Estate Transactions

Real estate transactions are straightforward, right? The seller agrees to sell the property for $X.XX and the buyer agrees to buy it for $X.XX. But that’s not all. There are taxes and fees that the parties will need to pay as well.

On the seller’s side, there are realtor fees and possible capital gains taxes.

In Brazil, most realtors charge a percentage of the transaction price. The percentage can vary from state to state, but in São Paulo, for example, it generally ranges from 6% to 8% for urban properties.

Seller’s may also have to pay capital gains taxes. This is a federal tax due when profit is earned on the sale.

Now, on the buyer’s side, there are notary fees and a transfer tax.

In real estate transactions, notaries prepare the escritura (deed) and issue an updated matrícula. The fees associated with these services are usually passed along to the buyer.

The buyer is also responsible for paying a tax on the transfer of the property. The tax, known as Imposto de Transmissão de Bens Imóveis or ITBI, is paid to the municipality. The amount due is calculated over the transaction price or the property’s assessed value, whichever is greater. The rate varies among cities, but in São Paulo and Rio it’s 3%.

As in any deal, it’s important to understand what you’re paying for and why. And, to avoid potential disputes later on, your contract should clearly describe who’s responsible for each of these payments.