The Montgomery County Council passed legislation on May 18th, which will impose additional costs on property owners engaged in transfers or certain financial transactions. The new law, introduced as Expedited Bill 15-16 and signed into law by the County Executive on May 25th, increases the rate of the Recordation Taxes (or “stamp taxes”) for any transaction which occurs after September 1, 2016.
What the Increase Means for Homeowners
The current rate(s) imposed by Montgomery County are $3.45 per $500 of consideration payable, or debt secured in the case of financings, on the first $500,000. For any amount in excess of $500,000, the rate of tax increases to $5.00 per $500. The law raises these rates by $1.00 to $4.45 on the first $500,000. For amounts over $500,000 the increase is $1.75, to $6.75 per $500. To soften this blow on the sale of residential owner-occupied property, which in most instances enjoyed an exemption from recordation taxes on the first $50,000 of consideration, the new law increases this exemption amount to $100,000. As before, this exemption applies only on the sale of owner-occupied property to a buyer intending to use the property as their principal residence. But the law qualifies that the buyer must be an “individual”, which may be interpreted by the Montgomery County Transfer Office to deny the exemption on transactions where the “individual” intending to occupy the property might desire to acquire title through a revocable or special needs trust or other estate planning device.
Implications for Commercial Transactions
For commercial transactions, including refinancing, the implications on costs of transactions become more costly if the financing is one that cannot be structured to take advantage of certain exemptions that may be available. This type of exemption may include the recently limited utility of financing using an Indemnity Deed of Trust loan structure or considerations in loan structuring when contemplating a refinancing. While both provide some measure of relief, the ability to fully avoid the imposition of recordation taxes has become more restricted and, at least in Montgomery County, the costs of those transactions will soon become more expensive. Indeed, some members of the County Council supported revisiting the rate to be imposed on amounts over $1,000,000 to an even higher rate. It is recommended that consultation with an attorney, along with discussions with your loan officer, regarding these increased impositions (or prospect of potential future increases) be undertaken in order to evaluate options for loan structuring that may help to minimize such costs.
Robert Gough is a principal of the firm and serves as the firm’s Managing Shareholder. Mr. Gough focuses his practice in the areas of commercial real estate transactions and leasing, commercial and residential closings, and related matters. With more than two decades of legal experience, he represents a variety of developers, institutions and individuals in the acquisition, ownership and disposition of real property.
2016 marks the 70th anniversary Miller, Miller & Canby has represented businesses and property owners. Please feel free to contact Robert Gough or any of the real estate attorneys with Miller, Miller and Canby for a complete range of transactional and advisory services. For more information on the firm’s real estate practice, click here.