Big change for Maryland refinances involving non-principal residences

Until recently, Maryland treated refinances of principal residences and other properties differently.

A borrower refinancing a principal residence paid recordation taxes on the difference between the outstanding principal balance of the existing loan and the face amount of the new loan. However, for non-primary residences (and for commercial property) a borrower paid recordation taxes on the full amount of the new loan.

A new law removes that distinction. All refinances are treated the same, with recordation tax assessed only on the difference between the outstanding principal balance of the existing loan and the face amount of the new loan. The law is effective for all mortgages recorded on or after July 1, 2013.

I just bought a property in Maryland. How do I qualify for the Homestead Tax Credit?

If you just bought a property in Maryland, there is nothing that you need to do right now to qualify for the Maryland Homestead Tax Credit.

The property taxes you pay are calculated based upon the assessed value of your property. If the assessed value goes up, your property taxes go up.

The Maryland Homestead Tax Credit operates to limit how much your property taxes can go up each year, if you live in the property as a principal residence. A homeowner pays no property tax on the amount of any increase of the assessed value that is above a cap.

The cap is the lower of 10% or the number set by your local government. Maryland’s State Department of Assessments and Taxation (SDAT) has an example of how this works on their website.

As a new purchaser of a property in Maryland, SDAT will mail you a homestead application when the new deed is recorded and their records have been updated. After you receive the application, you can mail it in, fax it in, or file electronically. Once you have filed the application, you should check the status with the SDAT Real Property Data Search page.

For additional information on the application process, see Joe’s post "MD homestead tax credit eligibility application deadline is Dec. 31."

Real property tax assessment guide

While all government jurisdictions collect taxes on real property, each does so in its unique way. Collection methods and tax due dates, for example, vary from one jurisdiction to the next.  

To help you navigate real property taxes in the District of Columbia, Maryland, Virginia and counties in Florida where we operate,  we have compiled this list of tax collection & billing offices along with links to property tax assessment pages wherever possible. This information will help you better understand how property taxes work and predict your property tax liability for any given property in that jurisdiction.

Click beyond the jump to continue reading.

Round-up of recent changes to DC metro area transfer, recordation taxes

As Todd mentioned in his blog post earlier this month, the biggest ticket item for closing costs for a real estate purchase in DC can be the transfer and recordation taxes collected by the DC government.

The same holds true for Maryland and Virginia transactions – with the added complication that in Maryland and Virginia, you can also pay a county transfer tax, and the rules and rates vary depending on your county. (See Todd’s post earlier this month about how complicated calculating these taxes can be in Montgomery County.)

I thought I’d sum up some recent changes to the rules on how these taxes are calculated in DC, Maryland, and Virginia for purchases and refinances.

Click beyond the jump to continue reading

Closing costs complicated in Montgomery County, Maryland

County transfer taxes plus state transfer & recordation taxes make Montgomery County a tricky place to buy real estate

Closing costs in Montgomery County, Maryland – both in terms of the required complex calculations and the high rates – may be the most unfriendly jurisdiction to home buyers and sellers compared to all other jurisdictions in the country.

Most homebuyers and sellers can very easily determine their closing costs for government transfer taxes by simply multiplying a base factor of say 1% or .5% against their contract purchase price. However, in Montgomery County, Maryland, a multitude of factors come into play when calculating this biggest chunk of closing costs.

At the time of closing on a Montgomery County, Maryland purchase transaction, the three different taxes imposed and generally split evenly between the buyer and the seller are:

  1. County Transfer Tax
  2. State Transfer Tax
  3. State Recordation Tax

As a guide, I have identified each tax below with the respective rates and associated variables. Or if you want to make it easy on yourself, I suggest using our Quick Quote which accounts for all these factors and variables with a few easy questions.

 

County transfer tax

This tax is imposed at 1% of the purchase price (or total consideration) and customarily split 50/50 between buyer and seller. Thus, typically, the buyer pays .5% and the seller pays .5%.

 

State transfer tax

This tax is imposed at .5% of the purchase price and customarily split 50/50 between buyer and seller. Thus, typically, the buyer pays .25% and the seller pays .25%. However, if the homebuyer is a Maryland first-time homebuyer, then the buyer is exempt from paying her portion but the seller still must pay the .25%.

 

State recordation tax

This tax is imposed at .69% on the first $500,000 of the purchase price plus an additional .1% on the amount of purchase price exceeding $500,000. This tax is also customarily split 50/50 between the buyer and the seller.

However, if the homebuyer will be occupying the property as a principal residence, then the first $50,000 of the purchase price is exempt from this tax, which means the tax is imposed at .069% on the first $450,000 of the purchase price.

Further, an additional .69% is imposed on the loan amount of $500,000 or less (in most cases a construction loan) to the extent it exceeds the purchase price or 1% on the loan amount over $500,000.00 to the extent it exceeds the purchase price.

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  • What are closing costs?

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  • What's title insurance?

    Insure your legal ownership just like you'd insure the building, but for lots cheaper.

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Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.