Documentary Stamp Tax Exemptions for Real Estate Transfers to or From Family Entities

Tax stamp

The Nebraska Department of Revenue recently issued additional guidance[1] regarding the documentary stamp tax exemption for transfers to or from family corporations, partnerships, and limited liability companies. 

The documentary stamp tax is based upon the value of the real property being transferred and is imposed on any grantor transferring beneficial interest in or legal title to real property.[2]  Currently, the tax rate is $2.25 for each $1,000 value or fraction thereof.[3]  There are several exemptions to the documentary stamp tax depending on the identity of the grantor and grantee or the purpose for the transfer.  One of those exemptions, known as Exemption 5b, allows certain deeds involving family corporations, partnerships, or limited liability companies that are transferred in the name of the corporation, partnership, or limited liability company (“LLC”) to be transferred without being subject to the documentary stamp tax.[4]

More specifically, Exemption 5b provides that the following types of deeds may be transferred free of the documentary stamp tax: from a corporation (whose stock is all owned by members of a family), a partnership (whose partners are family members), or an LLC (whose members are family members), as grantor, given to a family member who is a shareholder in the corporation as part of the complete liquidation of the corporation, who is a partner in the partnership in the dissolution of the family member’s interest in the partnership, or who is a member of an LLC in the dissolution of the family member’s interest in the LLC.[5]  In each case, in order to qualify for the exemption for family corporations, partnerships, or limited liability companies, “the property shall be transferred in the name of the corporation or partnership and not in the name of the individual shareholders, partners, or members.”[6]

The NDOR’s guidance clarifies that the following types of deeds are NOT eligible for Exemption 5b:

  • Deeds between two corporations, partnerships, or limited liability companies (LLCs) or any combination of such companies, regardless of whether the deed is given for no consideration; and
  • Deeds between family members in their names as individuals.

The new guidance instructs the register of deeds offices to “review the deed and any supporting documentation to ensure that the conveyance of real estate is eligible for the exemption.”  Unless supporting documentation is provided, the guidance further explains that “the exemption should not be granted and the deed should not be recorded unless documentary stamp tax is collected.” 

The NDOR did not address Exemption 21, which provides that deeds from a limited liability company or partnership (not otherwise subject to Exemption 5(b)) may be transferred free of the documentary stamp tax to any partner in the partnership or any member of the limited liability company.  Exemption 21 also applies to any transfers to the spouses of such partners or members.

Going forward, parties seeking to file deeds between family members and related entities should anticipate additional scrutiny upon claiming this exemption and should be prepared to provide additional documentation evidencing ownership of such entity, such as, for example, a stock certificate, membership unit certificate, partnership agreement or LLC Operating Agreement. What may need to be provided will depend on what the particular register of deeds office requires in its discretion.

Depending on the potential amount of tax and nature of the transaction, parties may also wish to consider transferring the ownership interests in the entity itself, rather than transferring the property directly, as the documentary stamp tax does not apply to transfers of personal property, such as ownership interests in the entity.  The risks of using this method, however, may not outweigh the benefit in avoiding the documentary stamp tax. 

If you have any questions or want to learn more about documentary stamp tax exemptions or strategies, please contact one of Woods Aitken’s Real Estate Attorneys. We encourage you to subscribe to our E-Briefs for the latest news, tips, and updates.

[2] Neb. Rev. Stat. § 76-901.

[3] Id.

[4] Neb. Rev. Stat. § 76-902(5)(b).

[5] Id.

[6] Id.