Connecticut Conveyance Tax Exemptions: Filing and Appeals

Connecticut exempts a long list of real estate transfers from the state’s conveyance tax, including deeds between spouses, court-ordered divorce transfers, bona fide gifts, deeds in lieu of foreclosure on a principal residence, corporate reorganizations that don’t change beneficial ownership, transfers involving the state or a municipality, and any deed where consideration is under $2,000. The catch: even a fully exempt transfer still requires filing Form OP-236 with the correct three-digit exemption code when the deed is recorded. Skip the code and the town clerk won’t accept the filing. Connecticut conveyance tax exemptions are listed in Section 12-498, and each has its own eligibility rules.

Family and Life-Event Exemptions

These come up most often, and they cover situations where money is not really changing hands in the ordinary sense.

Deeds Between Spouses

Any deed between spouses is exempt. The statute imposes no additional requirement — no divorce, no particular reason, no dollar threshold. If both parties are legally married to each other when the deed is recorded, the transfer qualifies.¹

Divorce-Ordered Transfers

Property transfers ordered by the Superior Court under a divorce decree are separately exempt. The common case is one spouse keeping the marital home while the other signs over their interest as part of the settlement. Because the exemption flows from the court order, it applies regardless of the property’s value.¹

Gifts Between Family Members

A parent can deed property to a child without triggering the conveyance tax, but not because the statute has a parent-child rule. Connecticut’s regulations treat a bona fide gift as not subject to the tax, even when the deed recites nominal consideration like “love and affection and one dollar.” The actual consideration is less than $2,000, so the transfer falls outside the tax entirely.² The same logic covers gifts between any individuals. If the family member pays fair market value, though, that’s a sale, and the full tax applies.

Foreclosure and Deeds in Lieu

Deeds in lieu of foreclosure that transfer a homeowner’s principal residence are exempt. So are transfers ordered by the court in a foreclosure judgment.¹

Business and Organizational Exemptions

Reorganizations often shift real estate on paper without any real sale. Several exemptions address this.

Mergers and Internal Restructuring

Deeds made as part of a corporate merger are exempt. A subsidiary transferring property to its parent corporation is exempt when the only consideration is cancellation of the subsidiary’s stock. A broader exemption covers any transfer that amounts to a mere change in the form of ownership with no change in who actually benefits from the property, and that last category is the one most often relied on in entity conversions and reorganizations.¹

The “mere change of identity or form” exemption is narrow in practice. If beneficial ownership shifts at all, say by adding new investors during the restructuring, the Department of Revenue Services may challenge the claim. Document that ownership percentages remain identical before and after the transfer.

Tax-Exempt Organizations

Transfers between affiliated corporations that are both exempt under Section 501(c)(2), (3), or (25) of the Internal Revenue Code qualify. Transfers from one 501(c)(3) to another 501(c)(3) also qualify. Deeds to nonprofit organizations that hold undeveloped land in trust for conservation or recreation purposes are excluded from the tax as well.¹

Government Transfers

Any deed where the state, a municipality, or a government agency is a party is exempt. That covers acquisitions for public use, condemnation, and dispositions of surplus government property.¹

Inheritance and Trust Distributions

Property passing to heirs through a will or intestate succession generally does not trigger the conveyance tax because no consideration changes hands. The heir receives the property by operation of law. The same applies to distributions from a trust to a beneficiary, provided the beneficiary is not paying for the interest.

Co-heir buyouts complicate the picture. If three siblings inherit a house and one pays the other two for their shares, the shares acquired for money involve real consideration and may be taxable. The inherited portion remains untaxed, but purchased portions can trigger tax if the total consideration reaches $2,000. Clean probate records and clear documentation of how any payments are allocated head off disputes with the DRS later.

Other Exemptions People Miss

Connecticut exempts several transfer types that regularly catch filers off guard:

Deeds securing or releasing debt. Recording a mortgage or releasing a lien is not a taxable conveyance.
Deeds of partition, when co-owners divide a property into separate parcels.
Tax deeds, meaning properties sold by municipalities for unpaid taxes.
Employee relocation transfers, where an employer buys an employee’s home under a relocation plan and resells it within six months. The resale is exempt.
Any deed where the total consideration is under $2,000.

Each has its own exemption code that has to be entered on the return.¹

Controlling Interest Transfers Are Different

Connecticut imposes a separate 1.11% tax when someone sells or transfers a controlling interest in an entity that owns Connecticut real estate, applied to the actual value of the real property interest when that value is $2,000 or more. The Section 12-498 exemptions do not automatically carry over to controlling interest transfers, which are governed by a different statute. If your transaction is structured as an entity sale rather than a deed transfer, do not assume the exemptions above apply.³

How to Claim an Exemption

Filing Form OP-236, the Connecticut Real Estate Conveyance Tax Return, with the local town clerk when the deed is recorded is required even when the transaction is fully exempt. Submit both pages, the DRS copy and the town clerk copy, along with any supporting documentation. The town clerk keeps one and forwards the other to the DRS. Electronic filing is available through the state’s myCTREC system.⁴

The return must include the correct three-digit exemption code. Claim an exemption but leave the code blank, and the town clerk cannot accept the filing. Each grantor and grantee also has to provide a Social Security Number or Federal Employer Identification Number.

Supporting documents vary by exemption. Spousal transfers may need a marriage certificate. Divorce-related transfers need a copy of the court decree. Corporate restructurings typically require resolutions, merger agreements, or organizational documents proving that beneficial ownership did not change. Trust distributions need the relevant trust documents or probate records.

Recording Fees Still Apply

An exempt transaction is not a free transaction at the clerk’s window. As of July 1, 2025, the recording fee is $70 for the first page of the deed and $5 for each additional page. A separate $2 fee applies to conveyances where consideration is $2,000 or more, funding the state’s historic document preservation program.

If You Get the Exemption Wrong

The DRS treats honest mistakes and deliberate ones very differently. Underpayment caused by negligence or careless disregard of the rules carries a penalty of 10% of the deficiency or $50, whichever is greater. Unpaid tax also accrues interest at 1% per month from the original due date, which adds up quickly on a large transaction.⁵

Fraud is treated far more harshly. If any part of the deficiency is due to fraud or an intent to evade the tax, the penalty jumps to 25% of the assessed deficiency, and the same period cannot draw both the negligence and fraud penalties. Serious cases can be referred for criminal prosecution.⁵

Appealing a Denied Exemption

If the DRS issues a deficiency assessment because it rejects an exemption claim, you have 60 days from the notice to request a hearing in writing. That first hearing is the opportunity to present additional documentation and argue the case with the agency directly. If it doesn’t resolve the dispute, a formal protest goes to the DRS Appellate Division, where an appellate officer reviews the evidence and issues a final determination. From there, you have one month to appeal to the Superior Court in the New Britain Judicial District, with further escalation possible to the Connecticut Supreme Court.⁵

1
Justia. Connecticut Code 12-498 – Exempt Transactions
2
Connecticut eRegulations. Connecticut Agencies Regulations 12-494-2 – Illustrations
3
Justia. Connecticut Code 12-638b – Tax on Transfer of Controlling Interest
4
Connecticut State Department of Revenue Services. Instructions for Form OP-236 Connecticut Real Estate Conveyance Tax Return
5
Connecticut General Assembly. Connecticut Code Chapter 223 – Real Estate Conveyance Tax