Maryland Transfer Tax, Recordation Tax, and Nonresident Withholding
This article provides an overview of the different taxes that apply on transfers of real estate. Each deed created by our Maryland deed preparation service is attorney-designed to meet Maryland recording requirements and comes with step-by-step instructions for filing with the county clerk or county register.
What Are the Maryland Transfer Tax and Recordation Tax?
Maryland charges two separate but related taxes on real estate transfers. Transfer tax and recordation tax are both state-level taxes that are due when recording a deed.1 Most Maryland counties also charge a local transfer tax in addition to state transfer tax and recordation tax.2
The clerk of the circuit court collects the combined tax amount due upon accepting a deed for recording.3 Maryland law ordinarily assumes that the current owner and new owner will split the tax liability equally.4 A seller is primarily liable if the buyer is a first-time Maryland home buyer who qualifies for a discounted tax rate.5 Any person may pay transfer tax or recordation tax by agreement of the parties.6
Maryland law exempts some types of deeds from the taxes.7 Transfer tax and recordation tax exemptions are mostly identical, so a deed that is exempt from transfer tax is almost always exempt from recordation tax, also.
How Are Maryland Transfer Tax and Recordation Tax Calculated?
The amount the new owner pays for the property (the deed’s consideration) determines the amount of transfer tax and recordation tax owed for the deed.8 Consideration includes cash payments, the principal amount of debt the new owner undertakes for the property, the value of other property exchanged for the real estate, and the amount owed on an existing mortgage assumed by the new owner.9
A Maryland deed must include a statement of the actual consideration for the deed. The amount listed in the deed is used to calculate transfer tax and recordation tax. The statement of consideration can be in the deed’s recitals, its acknowledgment, or in a signed statement attached to the deed.10
Maryland Transfer Tax Rates
Maryland law sets the state transfer tax rate at 0.5 percent of the deed’s consideration.11 State transfer tax rates are the same throughout the state.
Maryland Recordation Tax Rates
Maryland law gives each county (plus Baltimore City) authority to set recordation tax rates for transfers in the county.12 Recordation tax rates therefore vary by county—with each county fixing a rate per $500.00 of consideration. For example, Howard County’s recordation tax rate is $2.50 per $500.00 (effectively 0.5 percent), and the rate in Prince George’s County is $2.75 per $500.00 (or 0.55 percent).
Maryland County Transfer Tax Rates
Local transfer tax rates in Maryland are also assessed as a percentage of a deed’s consideration. Counties charge between 0.5 percent and 1.5 percent, and Baltimore City’s local transfer tax rate is 1.5 percent. A minority of counties—including Carroll County and Frederick County—have no local transfer tax.
What Deeds Are Exempt from Maryland Transfer Tax and Recordation Tax?
Maryland’s transfer tax and recordation tax laws include lists of multiple types of deeds that are exempt from the taxes.13 The lists are the same except that the transfer-tax exemption list adds an exemption for transfers to tax-exempt 501(c)(3) organizations engaged in preservation of agricultural land.14
The following deeds are exempt from Maryland’s transfer tax and recordation tax:
- Transfers to governmental entities;
- Transfers of property subject to a mortgage or deed of trust to a relative or domestic partner who assumes the debt (exemption up to the amount of the assumed debt);
- Transfers to the owner’s spouse, former spouse, domestic partner, or former domestic partner;
- Deeds that supplement a previously recorded deed without further consideration;
- Deeds that were previously recorded in the current county or another county;
- Certain transfers between parent and subsidiary business entities for no consideration (or solely for issuance, cancellation, or surrender of a subsidiary’s ownership interests);
- Deeds created as part of a business reorganization under Internal Revenue Code (I.R.C.) § 368(a);
- Transfers from an entity ceasing business to an original owner, an original owner’s close relative, or an owner who received the interest as a gift or inheritance from an original owner;
- Transfers under a prior contract of sale between the same parties for the same property if transfer tax was already paid;
- Transfers from a dissolving predecessor entity or ceasing real estate enterprise to an LLC if the LLC’s members are the same as the transferor’s owners and profit / loss allocation is unchanged;
- Transfers to a land trust qualified under I.R.C. § 170(h)(3);
- Transfers from an estate without consideration;
- Transfers to a trust without consideration;
- Transfers from a trust to a beneficiary without consideration if a transfer directly to the beneficiary from the transferor would be exempt;
- Transfers from a revocable trust to a beneficiary without consideration due to the death of the person who funded the trust; and
- Transfers of residential property surrendered in bankruptcy to the secured creditor who holds the purchase-money mortgage or purchase-money deed of trust.
Deeds for zero consideration are not technically exempt on that basis alone. But, because transfer tax and recordation tax are based on a deed’s consideration, a zero-consideration deed does not trigger tax liability.
Attorney Practice Note: The general rule is that Maryland transfer tax and recordation tax apply to transfers of a controlling interest in a real property entity—an entity with assets consisting of at least 80 percent real estate.15 The exception is that a transfer of a controlling interest is not taxable if a transfer of the entity’s real estate directly from the transferor to the transferee would be exempt.
Claiming a Transfer Tax and Recordation Tax Exemption
An exempt deed should identify the reason for the exemption on the face of the deed. The exemption statement lets the clerk’s office know that the deed requires no tax payment. Zero-consideration deeds that do not qualify for a specific exemption should include a clear statement that the new owner is giving no consideration (i.e., not making a payment, undertaking debt, or assuming an existing mortgage) for the property.
Exemption and Discounts for First-Time Maryland Home Buyers and Principal Residences
First-time Maryland home buyers are eligible for a reduced state transfer tax rate of 0.25 percent—which effectively removes the buyer’s half of the tax but leaves the seller’s half in place.16 A first-time Maryland home buyer is an individual acquiring Maryland real estate as a principal residence if the buyer has not previously owned a principal residence in Maryland.
Counties may also allow full or partial exemptions from recordation tax and county transfer tax for first-time Maryland homebuyers and for sales of owner-occupied residential real estate that the buyer will occupy for at least seven months per year.17 Partial exemptions are typically described as a fixed amount of consideration that is excluded when computing the tax. For example, a county might not count the first $50,000.00 of consideration toward the tax calculation if the property will be the new owner’s principal residence.
A deed that is eligible for a reduced rate or exemption for first-time Maryland home buyers should include the buyer’s signed statement verifying the circumstances of the buyer’s eligibility.18
What is Maryland’s Agricultural Land Transfer Tax?
The Maryland General Assembly has adopted a policy of preserving farmland and limiting the economic pressure to convert open land to more intensive use.19 Toward that end, Maryland has a special assessment category that limits the assessed value of agricultural land to reduce the property tax burden on farms.
Maryland’s agricultural land transfer tax is a tax on transfers of real estate that receives the favorable property tax assessment for farmland.20 The agricultural transfer tax—which applies when the transferred property will be removed from agricultural use—is in addition to other transfer taxes.21 The tax does not apply if the deed qualifies for one of the exemptions listed in Maryland’s regular state transfer tax law.22
Agricultural Land Transfer Tax Rate
The agricultural transfer tax law bases the tax on the consideration paid for the property—minus the value of any improvements and non-agricultural land transferred by the same deed.23 The tax rate is from three to five percent of the adjusted consideration. The percentage depends on the number of acres and whether the land is improved.24
The tax rate may be discounted from 25 to 65 percent if the property tax due for the land was assessed on any non-agricultural basis for at least one full taxable year before the transfer.25 After applying the discount (if any), there is a 25 percent surcharge unless the new owner is the transferor’s child or grandchild.26
Exemption for Continued Agricultural Use
A deed that would otherwise qualify for agricultural transfer tax is exempt if the new owner will continue using the property as farmland.27 The new owner claims the exemption by submitting an Application for Agricultural Use Assessment and filing an Agricultural Declaration of Intent.28 The declaration states the new owner’s intent to use the land for agricultural purposes for at least five years after the transfer.
Maryland charges a tax penalty if the new owner receives the exemption but fails to fulfill the five-year commitment. The penalty is equal to the amount of agricultural transfer tax, plus 10.00 percent.29
What is a Maryland Land Instrument Intake Sheet?
Every Maryland deed that changes a property’s ownership must be accompanied by a State of Maryland Land Instrument Intake Sheet (informally, intake sheet) when submitted for filing.30 The intake sheet gives the clerk of the circuit court and county finance office the information they need to update property records and determine the taxes due. It also lists any applicable state transfer tax, recordation tax, and county transfer tax exemptions. See Instructions for the State of Maryland Land Instrument Intake Sheet.
What is a Maryland Nonresident Sale of Real Estate Income Tax Payment?
Maryland requires a seller who is not a Maryland resident to make an estimated income tax payment for income derived from a sale of Maryland real estate.31 The estimated payment is due when a transfer changes the property’s ownership in the county’s property tax records. Maryland measures the required payment amount for a nonresident sale using the state’s highest marginal tax rate and any related county rate.32 Taxpayers can request refunds if the calculation causes an overpayment.
Do All Maryland Real Estate Transferors Have to Make Estimated Income Tax Payments?
Not every person who transfers Maryland real estate must make an estimated income tax payment. A transferor need not pay estimated tax if one or more of the following statements is true:
- The transferor is a Maryland resident.
- The transferor is selling his or her principal residence.
- A statement of consideration in the deed confirms that the actual consideration for the transfer is zero.
- The deed transfers property in connection with a foreclosure or is a deed in lieu of foreclosure.
- The Maryland Comptroller has issued a Certificate of Full or Partial Exemption stating that no tax is owed.33
What Forms Are Needed for Maryland’s Nonresident Seller Income Tax Rules?
The Maryland Office of the Comptroller publishes several tax forms related to estimated income tax payments and withholding for real estate sales. In most cases, a transferor needs to complete only one of the three forms (if any). The appropriate form depends on the transferor’s residence and the nature of the property.
Maryland Return of Income Tax Withholding for Nonresident Sale of Real Property (Form MW506NRS)
A transferor completes Form MW506NRS if the transferor is a nonresident (i.e., the transferor’s primary residence is in a state other than Maryland) and must pay the estimated income tax for the sale. The person responsible for the real estate closing submits the completed Form MW506NRS to the clerk of the circuit court when the deed is filed for recording. The completed form should be accompanied by the payment for the estimated tax due.
If a transfer involves more than one nonresident seller (other than spouses who file a joint tax return), each seller must submit a separate Form MW506NRS. Maryland business entities and out-of-state entities with formal authority to do business in Maryland need not complete Form MW506NRS.
Affidavit of Residence (Form WH-AR)
Estimated income tax withholding is not necessary for sales by Maryland residents. Maryland residents use Form WH-AR to verify their residence status. A resident seller may alternatively certify his or her Maryland residence on the face of the deed—in either the recitals or acknowledgment—rather than complete Form WH-AR.34
Nonresident sellers can also use Form WH-AR to confirm that the property qualifies as the seller’s principal residence under IRS rules.35 No estimated income tax withholding is needed if the property is a qualifying principal residence—which generally means the seller has primarily lived there at least two of the past five years.
Application for Certificate of Full or Partial Exemption (Form MW506AE).
A seller who would otherwise require estimated tax withholding completes Form MW506AE to apply for a withholding exemption from the Maryland Comptroller. The comptroller’s office must receive the completed form and supporting documents at least 21 days in advance of closing to allow the form to be processed.
If the comptroller’s office approves the exemption, it provides a Certificate of Full or Partial Exemption. The certificate shows that the seller is eligible for reduced withholding or exempt from withholding altogether. The certificate must be present at closing and before recording to avoid the withholding requirement.
Criteria allowing for full or partial exemption include the following:
- The transferor will receive zero proceeds from the closing.
- The deed transfers inherited property within 6 months after the prior owner’s death.
- The transferor is the custodian of an individual retirement account.
- The deed represents an I.R.C. § 1031 tax-free exchange, an I.R.C. § 453 installment sale, or another exempt transaction specified in the tax code (the other types of transfers are listed on Form MW506AE or the addendum included with the form).
The Maryland Comptroller has an alternate exemption application (Form MW506AE RELO) for nonresidents who sold property as a relocation package in Maryland.
Deeds that involve zero consideration do not require estimated tax withholding or one of the Maryland Comptroller’s income tax-related forms. A deed must have a statement of consideration “indicating that the consideration payable is zero” to verify that no withholding or additional form is necessary.36
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- Md. Code, Tax-Prop. §§ 13-202; 12-102.
- Md. Code, Tax-Prop. § 13-402.1.
- Md. Code, Tax-Prop. §§ 13-208; 12-109(a).
- Md. Code, Real Prop. § 14-104(b).
- Md. Code, Real Prop. § 14-104(c).
- Md. Code, Tax-Prop. §§ 13-102; 12-111.
- Md. Code, Tax-Prop. §§ 12-108; 13-207(a).
- Md. Code, Tax-Prop. §§ 13-203; 12-103.
- Md. Code, Tax-Prop. §§ 13-203; 12-103.
- Md. Code, Tax-Prop. §§ 13-204; 12-104.
- Md. Code, Tax-Prop. § 13-203.
- Md. Code, Tax-Prop. § 12-103(b).
- Md. Code, Tax-Prop. §§ 12-108(a – hh); 13-207(a)(1 – 26); see also Md. Code, Tax-Prop. § 13-402.1(c)(2) (applying state transfer tax exemptions to county transfer tax).
- Md. Code, Tax-Prop. §§ 13-207(b)-(c).
- Md. Code, Tax-Prop. §§ 13-103; 12-117.
- Md. Code, Tax-Prop. § 13-203(b).
- Md. Code, Tax-Prop. §§ 12-103(b)(3); 13-408.
- Md. Code, Tax-Prop. § 12-103(b)(3); 13-203(b)(4); 13-408.
- See Md. Code, Tax-Prop. § 8-209.
- Md. Code, Tax-Prop. § 13-302(a).
- Md. Code, Tax-Prop. § 13-302(b).
- Md. Code, Tax-Prop. §§ 13-305(g); 13-207(a)(1 – 26).
- Md. Code, Tax-Prop. § 13-304(a).
- Md. Code, Tax-Prop. § 13-303(a).
- Md. Code, Tax-Prop. § 13-303(c).
- Md. Code, Tax-Prop. § 13-303(d).
- Md. Code, Tax-Prop. § 13-305(a).
- Md. Code, Tax-Prop. § 13-305(b)(1).
- Md. Code, Tax-Prop. § 13-305(b)(2).
- Md. Code, Real Prop. § 3-104(g)(2)(i).
- Md. Code, Tax–General § 10-912.
- Md. Code, Tax–General § 10-912(c).
- Md. Code, Tax–General §§ 10-912(d)(1)-(6).
- Md. Code, Tax–General § 10-912(d)(1).
- Md. Code, Tax–General § 10-912(d)(5).
- Md. Code, Tax–General § 10-912(d)(6).