Are you budgeting for a home sale or purchase in Lexington’s 40509 and not sure what a transfer tax is? You are not alone. Closing costs can feel murky, especially when you hear terms like transfer tax, deed recording fee, and property tax proration. In this guide, you will learn what the Kentucky real estate transfer tax covers, who typically pays it in Fayette County, how it shows up on your Closing Disclosure, and how it differs from ongoing property taxes. Let’s dive in.
Transfer tax basics
A real estate transfer tax is a one-time tax or fee charged when legal ownership of a property changes hands. You will see it grouped with related recording costs at closing. It is different from your annual property tax bill.
In Kentucky, state law and local county rules drive what must be paid to record a deed. Counties, including Fayette County, also set recording fees. The deed cannot be recorded until the required taxes and fees are paid. Your title company or closing attorney collects these funds at closing and forwards them to the county clerk for recording.
At many closings, you will see these related items together:
- Transfer or conveyance tax
- Recording fees for the deed and, if you are financing, the mortgage
- Title or attorney charges for recording services
The exact names and fee schedules can vary by county and can change over time. Always verify current amounts before you lock in your numbers.
Who pays in 40509
Legally, the purchase contract controls who pays transfer taxes and recording fees. You and the other party can negotiate the allocation.
In everyday Lexington practice, sellers often cover deed-related transfer taxes and the fee to record the deed, since sellers deliver the deed. Buyers often cover mortgage-related recording fees tied to their loan. That said, market conditions can shift local norms, and individual contracts sometimes assign costs differently.
Here is how it typically plays out on the settlement statement:
- If the seller pays the transfer tax, it shows as a debit that reduces the seller’s net proceeds.
- If the buyer pays the transfer tax, it shows as a debit that increases the buyer’s closing costs.
- Mortgage recording fees usually appear on the buyer’s side, while deed recording fees commonly appear on the seller’s side.
When you write your offer, discuss your preferred cost split and how it supports your goals. Local title companies, closing attorneys, or your listing agent can confirm what is common in your price range and neighborhood within 40509.
See it on a Closing Disclosure
Most residential purchases use a Closing Disclosure, sometimes called a CD. A HUD-1 may still be used in certain situations, but the CD is the standard for purchase transactions.
On the CD, transfer taxes and recording fees usually appear in the “Other Costs” or “Other” section. They are labeled by type and shown in separate seller and buyer columns. You may see labels such as:
- Transfer Tax or Conveyance Tax
- Recording Fee — Deed
- Recording Fee — Mortgage
- County Recording Fees
- Title or Escrow Recording Charges
Below is a simplified example to show placement only. These are placeholders, not actual numbers.
| Example settlement snapshot (placeholders) | Seller | Buyer |
|---|---|---|
| Transfer/Conveyance Tax | $[transfer-tax] | — |
| Recording Fee — Deed | $[recording-deed-fee] | — |
| Recording Fee — Mortgage | — | $[recording-mortgage-fee] |
| Title Recording Service | $[title-fee] | $[title-fee] |
Exact labels and line numbers can vary by title company. Your closing agent will provide a final CD that shows the actual debits and credits for each side.
Transfer tax vs. property tax
Transfer tax and property tax serve different purposes and follow different rules.
- One-time vs. recurring: The transfer tax is a one-time charge due at the time of transfer and recording. Property tax is a recurring ad valorem tax based on assessed value.
- Basis: Transfer tax is tied to the sale transaction. Property tax is based on the local assessed value and tax rates in your taxing districts.
- Timing: Transfer tax is paid at closing. Property taxes are paid on the local schedule and are prorated between buyer and seller at closing so each party pays their share for the portion of the year they own the property.
Understanding this difference helps you separate your closing costs from your annual carrying costs.
How prorations work in Fayette County
Property taxes are typically prorated on the settlement statement in Lexington to fairly divide the tax year between buyer and seller. Whether taxes are paid in arrears or in advance, and the local due dates, will affect the proration math. Your closing agent uses the contract and local practices to calculate the daily rate and split.
Transfer taxes are not prorated. They are charged once to the party responsible under the contract. If you plan to request a closing cost credit or a price adjustment to cover transfer costs, make sure it is clear in your offer language.
If you are buying with a lender, you may also fund an escrow account for future property tax payments at closing. That escrow deposit is separate from the transfer tax and deed recording fees.
Budgeting tips for buyers and sellers
Planning ahead removes stress on closing day. Use these quick checklists to build a smarter budget.
For buyers:
- Ask your lender and title company for an itemized estimate that includes mortgage recording fees and any transfer tax you may owe per your contract.
- Review your Closing Disclosure early and verify labels, amounts, and who is paying each line.
- Remember to budget for prorated property taxes and any escrow deposits your lender requires.
For sellers:
- Request a preliminary net sheet that includes a line for transfer or conveyance tax and the deed recording fee.
- Confirm with your agent how buyer concessions or market conditions might shift who pays which closing costs.
- Review your payoff, commissions, and government fees together to understand your true net proceeds.
Exemptions and special cases
Some transfers are handled differently under Kentucky law. While you should always verify your specific situation, it is common to check for potential exemptions such as:
- Transfers between spouses or between a parent and child
- Transfers to government entities or certain nonprofit organizations
- Situations involving recorded judgments or other statutory provisions
Counties can also adjust or waive certain recording fees for specific instruments. If you think an exemption might apply to your transaction, raise it early with your closing attorney or title company so they can confirm.
Verify amounts in 40509
Fee schedules and line labels can change. Before you rely on a number you found online, confirm the current deed and mortgage recording fees and any applicable conveyance taxes for Fayette County. Your best sources are the Fayette County Clerk for recording fees, the Property Valuation Administrator for assessment and tax cycle details, and your closing agent for a written estimate.
If you are preparing an offer or setting a list price, build in a cushion for government fees and check your purchase contract to see who pays each item. Clear language up front helps avoid last-minute surprises at the closing table.
Bottom line for Lexington buyers and sellers
For a Lexington closing in 40509, think of transfer tax and related deed recording fees as one-time costs tied to the deed, while property taxes are ongoing and prorated. Who pays is set by the contract, and local custom often has sellers covering deed-related costs and buyers covering mortgage recording fees. Your Closing Disclosure will show these items clearly in each party’s column.
If you want help estimating your costs or deciding how to negotiate them in today’s market, connect with a local guide who handles these details every week. Reach out to Jon Bentley for a clear, itemized path to closing and practical strategies to protect your bottom line.
FAQs
Is the transfer tax the same as property tax?
- No. Transfer tax is a one-time cost at the time of sale and recording, while property tax is an ongoing ad valorem tax that is prorated at closing.
Who usually pays the transfer tax in Lexington?
- The purchase contract controls; sellers often pay deed-related transfer and recording fees in local practice, but this is negotiable and can vary.
How much is the transfer tax in Fayette County?
- Amounts and fee names can vary; confirm current figures with the Fayette County Clerk and your closing agent for an itemized estimate.
Where will I see transfer tax on the Closing Disclosure?
- It appears as a separate line item, such as Transfer Tax or Recording Fee — Deed, in the seller or buyer column depending on your contract.
Can transfer taxes be negotiated in my offer?
- Yes. Most closing cost allocations, including transfer taxes and recording fees, are negotiable and should be spelled out in the contract.
