Buyer's Cost Basis

• The Internal Revenue Service (IRS) allows a buyer to pay the property transfer tax at closing. The buyer cannot deduct the tax as an itemized deduction on her annual tax return. The transfer tax is part of the cost basis of the property and does not increase the selling price of the home.
  
  

Seller's Realized Profit

• The seller can pay the state transfer tax at closing, but the tax cannot be claimed as an itemized deduction on Schedule A of his federal tax return. The IRS considers the tax an expense related to the sale of the home, so it can be deducted from the seller's realized profit.
  
  

Rental Property

• If a buyer uses a property as a real estate investment or a rental, she can deduct the state transfer tax as a business-related work expense. If the buyer uses the property as a second home part of the year, the IRS only allows her to deduct the portion of the transfer tax for the months that the property was used as a rental. She cannot deduct the transfer tax as an itemized deduction on Schedule A of tax Form 1040.
  
  

Tax Deductions

• IRS guidelines state that a rental property owner can claim the transfer tax as an expense on Schedule C of tax Form 1040. The tax must be claimed with other work expenses associated with the maintenance and upkeep of the real estate investment.