A version of this article first appeared on the PA Title Insurance Blog.
Philadelphia homeowners are saving money on their property transfers, and it all comes down to three letters: FIP
What is an FIP?
In the City of Philadelphia, in accordance with Bill #070541 amending the Realty Transfer Tax section of the Philadelphia Code, an FIP (Financially Interdependent Person) is defined as: Persons who live together as a single household and who, for at least six months, have agreed to share the common necessities of life and to be responsible for each other’s common welfare.
FIP status is blind to sexual orientation and familial relationships may also qualify such as aunt, uncle, and nephew. The Amendment refers to “the relationship between or among individuals responsible to one another for the common necessities of life (i.e., food, clothing, shelter, etc).”
The Benefits of FIP Status
If two FIPs own real estate together and one person no longer wishes to own the property, the Deed conveying his/her interest to the other will not be subject to the City’s portion of the realty transfer tax as it would have been prior to the Amendment.
This exemption also applies to transferring property to an FIP.
Registered Life Partners are not required to prove their financial interdependence.
What Your Client’s Can Expect
After the Deed has been recorded, the transfer could be subject to audit by the Department of Revenue. The Grantor/Grantee’s FIP status will be verified by the Department of Revenue. The Department will request documentation including, but not limited to, copies of statements of joint bank accounts, joint utility bills, and proof that the parties have equally shared in housing expenses.
To protect against the misuse of this benefit, the immediate subsequent transfer of the property within a certain time frame may cause the Department of Revenue to “look-back” and tax the previous exempt transaction.
Important to Note
The Commonwealth of Pennsylvania does not recognize an exemption for property transfers between or among FIPs; therefore, a transfer will be subject to the Realty Transfer Tax imposed by the Commonwealth of Pennsylvania.
As in the past, there is no City or State transfer tax assessed on transactions between husband and wife, parent and child, brother and sister.
FIP Procedures
There is no doubt that the FIP exemption will benefit many residents and while the transfer is not complex, certain procedures must be followed including the execution and filing of multiple Affidavits.
The Philadelphia Real Estate Transfer Tax Certification should indicate the percentage of exemption and that the transfer is between Financially Interdependent Persons and signed by the parties. In addition, a sworn Affidavit must be executed by the parties and filed with the Deed. The Affidavit should include language wherein the parties confirm their FIP status. While not necessary for the filing of the Deed, you may want to go one step further and either include language in the sworn Affidavit or prepare a second Affidavit wherein the parties acknowledge receipt of a copy of Bill #070541 and acknowledge that the transfer may be subject to audit.
Visit Phila.gov for Bill #070541 or cut and paste the following link to your browser (http://webapps.phila.gov/council/attachments/4380.pdf)
