Connecticut conveyance tax exemptions, and how one is claimed

A Connecticut conveyance tax bill is not automatic. Some transfers owe nothing, and the list of which ones lives in a place most people never read: the instructions to the tax return.

The state’s tax return for the conveyance tax, Form OP-236, has a line where the grantor says no tax is due. The reasons it allows are few. Either the conveyance was for no consideration or for consideration under $2,000, or it falls within an exemption in Connecticut General Statutes § 12-498, and the exemption’s code goes on the form. The Department of Revenue Services publishes the codes in its instructions for the form. This guide walks through it.

How an exemption is claimed

There is no separate application. The exemption is claimed on the return, on the line where the grantor says why no tax is due, by entering the exemption code.

The code is not optional. The instructions state that if an exemption is claimed and no code is entered, the return is incomplete and the town clerk cannot accept it.

Three codes ask for more than the number:

• Code 01, a transfer the State is prohibited from taxing under federal law or the U.S. Constitution, asks for the specific statutory or constitutional citation.
• Code 09, the court-decree category below, asks for the docket number.
• Code 13, the enterprise zone exemption, requires a letter from the municipality’s economic development officer saying the property is inside the zone.

Code 23, covered below, requires a copy of an engineer’s written evaluation.

The exemptions a home seller or buyer might meet

The list has many categories, and several concern corporations, governments and lenders. These are the ones that touch a household.

Between spouses (code 17). A conveyance between spouses is exempt.

Under a divorce decree (code 09). A transfer made under a Superior Court decree as the result of an annulment, a dissolved marriage or a legal separation is exempt. The same code covers foreclosure by decree of sale, partition of joint and common estates and a judgment of loss mitigation. The docket number goes on the return. For the divorce category, the instructions add that returns are not required with the recording of Certificates by Decree.

Mortgage deeds (code 02). A deed that secures a debt, such as a mortgage deed, is exempt.

A deed in lieu of foreclosure (code 21). A conveyance of a transferor’s principal residence in lieu of foreclosure is exempt.

A principal residence that sells for too little (code 22). A transferor’s principal residence is exempt where the gross purchase price is not enough to pay the mortgages on the property plus the real estate taxes and other charges that carry priority over those mortgages.

A crumbling foundation (code 23). The transfer of a principal residence with a deteriorated concrete foundation caused by pyrrhotite, as determined by a professional engineer, is exempt. It applies only to the first transfer after the engineer’s written evaluation is obtained, and not to a transferor receiving assistance from the Crumbling Foundations Assistance Fund. The evaluation must be attached or the exemption will be disallowed.

A change of form, not of owner (code 20). A conveyance made only to change the identity or form of ownership, where nobody’s beneficial ownership changes, is exempt.

Affordable housing (code 24). A deed of property with dwelling units, where every unit is deed restricted as affordable housing, is exempt.

Property tax assistance (code 12). The principal residence of a grantor approved for property tax assistance under the statutes the instructions cite is exempt from the state tax, within the time limits the instructions set. This is one of the three exemptions that stop at the state tax.

Where an exemption stops short

The exemptions are not all alike. Three of them are written to exempt only the state tax, and the instructions say so in each case: code 12 (property tax assistance), code 13 (enterprise zone) and code 18 (designated entertainment district). Each is stated as not exempt from the municipal real estate conveyance tax.

That matters because the state and the municipal tax are separate calculations, added together. Where one of these three applies, the state portion drops out and the town portion can remain. The municipal rate depends on the town, as which Connecticut towns charge more explains.

What is not on the list

There is no code for a gift. A gift of real estate is not an exemption category. What the return offers is the separate no-consideration line: a conveyance for no consideration, or for consideration under $2,000, with no tax due.

The word that does the work is consideration. The instructions define it as money or anything of value paid or transferred directly or indirectly, whether or not it is written in the deed. By way of example, they say it includes any liability assumed and any liability to which the property is subject. A transfer with no money changing hands can therefore still carry consideration if the property is subject to a mortgage. The instructions also note that a transfer for no consideration or for less than adequate consideration can be subject to federal or Connecticut gift tax, which is a separate question from the conveyance tax.

Reading the list before the closing

The list is short enough to read in a few minutes, and it is worth reading before the closing rather than at it, because the code, the docket number or the attached letter has to be ready when the return is filed. The seller closing costs guide shows where the tax sits among the other deductions when no exemption applies, and the conveyance tax calculator runs the figure for a sale that is taxable.

Sources: the Connecticut Department of Revenue Services, Instructions for OP-236, Connecticut Real Estate Conveyance Tax Return (Rev. 10/23), “Types of Exempt Conveyances” and the line 14 instructions, and Form OP-236 itself. The copy of the instructions on the DRS website carries a “DRAFT” stamp dated October 2023 on its exemptions page. The statute that creates the exemptions is Conn. Gen. Stat. § 12-498.