Rev. Rul. 54-197

Advice is requested concerning the application of the stamp tax on conveyances imposed by section 3482 of the Internal Revenue Code in a transaction where, pursuant to a contract of sale, realty is conveyed by deed to a purchaser, subject to an existing mortgage which the purchaser, by direct negotiation and agreement with the mortgagee, pays off at the time title to the property is conveyed to the purchaser.

Section 3482 of the Code imposes a stamp tax on any deed, instrument, or writing whereby any lands, tenements, or other realty sold shall be granted, assigned, transferred, or otherwise conveyed to, or vested in, the purchaser or purchasers, when the consideration or value of the interest or property conveyed, exclusive of the value of any lien or encumbrance remaining thereon at the time of sale, exceeds $100. Where the net consideration is in excess of $100, the rate of tax is 55 cents on each $500 or fractional part thereof.

It is held that where realty is purchased subject to an existing mortgage, the mortgage is not removed by the sale of the realty even though the purchaser agrees with the mortgagee to pay the mortgage at the same time that he takes title to the realty. The election by the purchaser to pay the mortgage was not a part of the contract of sale but was negotiated independently and collaterally by the purchaser with the mortgagee. Accordingly, since the mortgage was not removed by the sale, the amount of such mortgage may be excluded from the sale price of the realty in computing the tax applicable to the conveyance of the realty.