Friday, October 25, 2013

Selling property that straddles state boundaries

An attorney here today on an unrelated transaction shared an interesting situation.  He represents the seller of a property that lies partly in a Massachusetts community and partly in a New Hampshire community.  He understands that he must record the deed in the Middlesex North Registry for the Massachusetts portion and also in the Hillsborough Registry for the New Hampshire portion, but what of the tax stamps?  In Massachusetts, the seller pays the entire tax while in New Hampshire the tax is equally divided between the buyer and the seller.  The challenge is how to apportion the purchase price to calculate the amount of tax due to each state. 

The attorney worked with the Massachusetts Department of Revenue and the New Hampshire Division of Taxation and together they found a solution acceptable to all.  He was to take the assessed value of the New Hampshire property (it was in a town with 100% valuation) and the assessed value of the Massachusetts property, combine them together, and then calculate the percentage of the whole applicable to each state.  He was then to apply that percentage to the sales price and the resulting amounts would be the basis for the tax liability in each state. 

To illustrate, let's say that the New Hampshire property was assessed at $180,000 while the Massachusetts property was assessed at $70,000.  Together they total $250,000.  The New Hampshire property accounts for 72% of the total while the Massachusetts property is 28%.  Let's assume further that the purchase price on this sale is $325,000.  The New Hampshire tax liability would be based on 72% of $325,000 which equals $234,000 while the Massachusetts tax liability would be based on 28% of $325,000 which equals $91,000. 

This is not a situation that occurs frequently, but it's good to know how it is to be handled, just in case.

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