Ask Andrew: Transfer and Recordation Taxes
By: Andrew Goodman
Q: What are transfer and recordation taxes and how are they calculated?
A: Transfer and recordation taxes are fees imposed to the buyer and seller at settlement. These taxes are based on a percentage of the purchase price and are included within the closing cost section of the settlement sheet.
Transfer tax is a tax on the passing of title to property from one person or entity to another. Just like the title of the tax says, it is the tax to transfer title ownership from the seller to the buyer. In Montgomery County, the county transfer tax is 1 percent of the purchase price. The state transfer tax is 0.5 percent of the purchase price in all counties.
Recordation tax is a tax imposed by the State for any instrument that transfers an interest in real property or that creates a security interested in real or personal property. This is the tax imposed to record the legal documents with the clerks of Circuit Courts.
In Montgomery County, the recordation tax is $3.45 per every $500 (or $6.90 for every $1,000) up to a purchase price of $500,000. The recordation tax is $5 per every $500 (or $10 for every $1,000) for any purchase price above $500,000. Please note that the first $50,000 of the state recordation is exempt if the property will be the purchaser’s primary residence.
Maryland law requires that, unless otherwise negotiated in the sales contract, the cost of any recordation tax or state and county transfer tax shall be split equally between buyer and seller. (There is an exception for a first-time Maryland owner-occupant home buyer.)
In the event the buyer is a first-time Maryland home buyer, the buyer is exempt from paying the state transfer, and unless negotiated otherwise, the seller pays all of the county transfer and state recordation.
Please note that even though the first-time home buyer addendum says the seller is to cover all transfer and recordation taxes, it’s still customary to split them with the buyer’s portion of the state transfer tax being waived.
Please speak with the settlement company you will be using for further information.