Philadelphia realty transfer tax is imposed on a transfer of real estate by deed in lieu of foreclosure. It was generally understood that the tax base for this purpose was the computed value of the real estate. The computed value of real estate is its assessed value for real estate tax purposes multiplied by the common level ratio factor.

On May 9, 2000, in Kennedy Boulevard Associates I, L.P., v. Tax Review Board of the City of Philadelphia, the Commonwealth Court held that for Philadelphia realty transfer tax purposes, the realty transfer tax base in a deed in lieu of foreclosure is the fair market value of the real estate, not its computed value.

If you acquired Philadelphia real property by a deed in lieu of foreclosure and paid realty transfer tax on the computed value of the real estate, you should consider filing a claim for refund. To claim a refund, the claim must be filed within 3 years of payment of the tax and you must be able to prove that the fair market value of the real estate on the date of the deed in lieu of foreclosure was less than its computed value. An appraisal of real estate acquired by deed in lieu of foreclosure that was done roughly contemporaneously with such deed should be very helpful in establishing the fair market value of the real estate at the time of the transfer by the deed in lieu.

We suggest that if you acquired Philadelphia real estate through a deed in lieu of foreclosure in the last 3 years, you review your files to determine if the appraised value of any such real estate was less than the computed value on the date of the transfer by deed in lieu of foreclosure.