Were deeds exchanged between former spouses taxable when they were recorded only to facilitate a mortgage refinancing that never occurred?

Subject

Deeds Between Former Husband and Former Wife

Plain-English summary

Both deeds were taxable based on the outstanding mortgage balance. The first deed carried $485.10 of tax. Only the $.70 minimum was paid on the deed back, so additional tax remained due if that deed stayed in the public records.

The failed refinancing did not undo the recorded transfers. If a judge expunged both deeds, the ruling said previously paid deed tax could be refunded.

What this means for you

The purpose of a deed did not override its tax consequences. An existing mortgage counted as consideration even when former spouses exchanged property only to satisfy a lender's proposed refinancing structure.

Common questions

Did the failed refinancing eliminate deed tax? No.

What was the tax base? The mortgage principal outstanding on each transfer date.

Could tax be refunded? Potentially, if a judge expunged both deeds from the public records.

Citations and references

• Fla. Stat. §§ 201.02(1), 201.08, and 213.22

Source

• Landing page: Florida Tax Law Library
• Advisement: TAA 94B4-007

Original ruling text

Jun 10, 1994

Re: Technical Assistance Advisement No. 94(B)4-007 Documentary Stamp Tax Deeds Between Former Husband and Former Wife Sections 201.02, 201.08, F.S. XXX (Hereinafter Former Wife) XXX (Hereinafter Former Husband)

Dear:

This is in answer to your request for a Technical Assistance Advisement regarding the following question:

ISSUE

Are documentary stamp taxes due on a deed from Former Wife to Former Husband and on a deed back from Former Husband to Former Wife both of which were given to facilitate refinancing the existing mortgage on Former Wife's homestead property?

BACKGROUND

According to your request, Former Wife and Former Husband had agreed to refinance the mortgage on the home Former Wife occupies. The home is encumbered by a mortgage signed by both Former Wife and Former Husband.

The mortgage refinancing company requested that in December, 1993, Former Wife deed the property over to Former Husband before they would issue a new mortgage. The agreement was that after recordation of the new mortgage, Former Husband would then deed the property back to Former Wife. However, the new mortgage was not issued.

In January, 1994, Former Husband deeded the property back to Former Wife. The old mortgage was still in effect because no refinancing had ever taken place.

Currently Former Wife is obtaining a new mortgage in Former Wife's name alone to be obtained in June, 1994.

DISCUSSION AND LAW

Under s. 201.02(1), Florida Statutes, deeds are subject to documentary stamp tax at the rate of $.70 per hundred or fraction thereof on the consideration for the transfer. Consideration includes any monies paid, if any, plus any other consideration given. Effective July 1, 1990, s. 201.02(1), F.S., defines consideration for transfers as including mortgages. Without regard to the reason it is given, a deed executed by one party to another party for no consideration other than the existing mortgage on the property is subject to the tax. The tax is based upon the outstanding principal balance of the mortgage.

The deed from Former Wife to Former Husband recorded in OR Book 1801, page 728, was subject to documentary stamp tax at the
$.70 rate ($485.10) paid upon recordation, presumably on the outstanding principal balance of the existing mortgage.

The deed from Former Husband back to Former Wife recorded in OR Book 1805, Page 1563, is subject to the same rate of tax based also on the then outstanding principal balance of the same (still existing) mortgage. Only $.70 minimum tax was paid on this deed. If any mortgage payment was made between December 23, 1993 (the date of the first deed), and January 7, 1994 (the date of the second deed), the tax would be on the outstanding principal balance of the mortgage on January 7, 1994. However, since the tax has not been paid on this deed, upon audit an assessment may be made which would require payment of the tax, approximately $485.10, plus interest at the rate of 12% per year plus a possible penalty of up to 50% of the amount of the tax due.

However, if a judge were to expunge both deeds from the record, a refund of the taxes paid on the deed(s) is possible.

If the old mortgage is satisfied and a new mortgage

recorded, a tax at the rate of $.35 per hundred or fraction thereof will be due on the principal balance of the new mortgage.

DEPARTMENT'S POSITION

The documentary stamp tax on the first deed from Former Wife to Former Husband was due on the outstanding principal balance of the mortgage existing on the property. Documentary tax in the amount of $485.10 was paid on recordation of this deed. Documentary stamp tax was due on the second deed based on the outstanding principal balance of the mortgage, but only $.70 was paid. Documentary stamp tax is still due on the outstanding principal balance of the old mortgage if this deed remains in the public records.

However, if both deeds are expunged from the public records by a judge, documentary stamp taxes previously paid on recordation of both deeds may be refunded to the payor of the documentary stamp tax.

This response constitutes a Technical Assistance Advisement under s. 213.22, F.S., which is binding on the Department only under the facts and circumstances described in the request for this advice as specified in s. 213.22, F.S. Our response is predicated on those facts and the specific situation summarized above. You are advised that subsequent statutory or administrative rule changes or judicial interpretations of the statutes or rules upon which this advice is based may subject similar future transactions to a different treatment than expressed in this response.

You are further advised that this response and your request are public records under Chapter 119, F.S., which are subject to disclosure to the public under the conditions of s. 213.22, F.S. Your name, address, and any other details which might lead to identification of the taxpayer must be deleted by the Department before disclosure. In an effort to protect the confidentiality of such information, we request you notify the undersigned in writing within 15 days of any deletions you wish made to the request or the response.

Sincerely,

M.E. Clemens
Tax Audit Specialist III
Technical Assistance

MEC/mh