Understanding Maryland’s Transfer Tax: A Quick Guide
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Joseph Gordon EditorJoseph Gordon is an Editor with HomeLight. He has several years of experience reporting on the commercial real estate and insurance industries.
Selling your Maryland home requires understanding several financial responsibilities, including real estate transfer taxes. Transfer taxes are imposed by state, county, or municipal authorities when the title of a property is transferred from one owner to another. In Maryland, these taxes can significantly affect the total cost of selling your home.
Our guide provides an overview of how transfer taxes operate in Maryland, detailing what sellers should anticipate. Whether you’re a first-time seller or a seasoned homeowner, understanding these costs is essential for a smooth transaction.
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Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Maryland area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
Real estate transfer taxes are levied by state, county, or city governments when the ownership of a property is legally transferred from one individual to another.
According to the Federal Trade Commission, this tax is applicable whenever the title to property—essentially the legal documentation that confers ownership—is passed to a new owner. The rate and the obligation to pay can vary significantly depending on where the property is situated, with different jurisdictions imposing different rates and rules.
These taxes are a form of revenue for local governments, supporting various public services and infrastructure projects. As a property seller or buyer in Maryland, it’s important to understand how these taxes will affect your transaction.
The amount you owe can significantly influence the financial aspects of the property transfer, making it vital to factor them into your budgeting and planning. You can learn more about how these taxes help to generate revenue and support local communities.
Who pays for transfer taxes?
In Maryland, the responsibility for paying transfer taxes falls to both the buyer and the seller of a property. Typically, these taxes are part of the closing costs and can be negotiated during the sale process. It’s common for buyers and sellers to share the burden of these taxes, but the specifics can be worked among each party before the sale is finalized.
What are the types of transfer taxes?
Transfer taxes will typically vary based on local guidelines but can generally be broken down into three categories — state, city, and county, depending on the state. Here’s a quick look at how it works in Maryland.
State transfer taxes
At the state level, Maryland’s transfer tax is levied at a rate of .5% of the property’s purchase price (or actual consideration). However first-time home buyers in the state who are purchasing a primary place of resident are eligible to be taxed at a rate of .25%.
First-time home buyers are required to submit an exemption form for eligibility to be determined.
Here’s a quick look at the transfer taxes you might be responsible for on a Maryland home sold for $450,000:
- $450,000 taxed at a rate of .5% = $2,250 transfer tax
- $450,000 taxed at a rate of .25% (first-time home buyer exemption) = $1,125
County transfer taxes
There are several counties in Maryland that impose additional county transfer taxes.
For example, the transfer tax in Montgomery County is calculated at 1% of the property’s selling price. There is also a Recordation tax is charged at $8.90 per $1,000, rounded to the nearest $500 increment up to $500,000 (above $500,000, it’s 1.35%).
An exemption of $890.00 may be available for owners of occupied residential properties.
Consult a real estate or tax professional in your area to get a better idea of what you might owe based on your local requirements.
Other transfer fees
In addition to transfer taxes, there are possible fees to consider, such as from a homeowner’s association or another local neighborhood organization. Again, as these can vary heavily based on location, it’s important to consult a professional.
If you’re selling your home for sale by owner, consulting a professional might help with some of the finer points of the process and give you a better idea of what you can expect.
Are transfer taxes deductible?
Unfortunately, transfer taxes are not deductible from your income tax. However, they can influence the amount of capital gains taxes you pay. Capital gains refer to the profit made from selling your property, which, like profits from other assets, is subject to federal taxes.
The Internal Revenue Service allows sellers to incorporate paid transfer taxes into their list of selling expenses. This adjustment can be made on the closing statement of the home sale, enabling sellers to reduce their taxable profit. By treating transfer taxes as selling costs, you can effectively decrease the capital gains tax owed, potentially saving a significant amount of money.
Transfer tax exemptions
In some cases, sellers in Maryland may be eligible for exemptions from transfer taxes, depending on specific circumstances and their relationship to the buyer.
Exemptions can significantly reduce the financial burden during the property transfer. Some common situations where transfer taxes may not apply include:
- When property is transferred to a state agency, the state itself, or a political subdivision within the state.
- When property is transferred between family members or domestic partners, such as to a spouse, son, daughter, stepson, stepdaughter, parent, sibling, grandchild, grandparent, or a domestic partner.
Estimating transfer taxes for your home sale
Estimating the transfer taxes for your Maryland home sale can be a complex process, but tools like HomeLight’s Net Proceeds Calculator make it easier. This calculator provides a quick estimation by considering all relevant costs, including transfer taxes, agent fees, and any recent renovations. It helps you get a clearer picture of what you might earn from the sale of your home.
For a more detailed and accurate assessment of your transfer taxes and other closing costs, it’s advisable to consult with a top real estate agent. These professionals can offer insights into how these expenses can be negotiated based on current market conditions. Engaging a skilled agent early in the process ensures that you have expert guidance on possibly reducing your financial responsibilities through negotiation.
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