Understanding Howard County’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.
If you are selling your home in Howard County, you might have wondered about transfer taxes. What are they? Transfer taxes are fees levied by local or state authorities whenever property ownership changes. While they aren’t complicated, there is a bit of nuance to them, and it’s important to know how they work.
This guide will break down how the Howard County transfer tax works, giving you insight into who pays what, how much it can impact your bottom line, and more.
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What are transfer taxes?
Real estate transfer taxes are charged by state or local governments when property ownership is transferred from one individual to another.
According to the Federal Trade Commission, these taxes are due when the title of a property, essentially the document confirming legal ownership, is officially transferred to a new owner. This can occur through sales, inheritance, or gifting of property.
The amount owed in transfer taxes can vary significantly based on the property’s location, as different states, counties, and cities usually have their own unique rates and regulations. Transfer taxes primarily serve as a revenue source for local and state governments, funding various public services and infrastructure projects.
Who pays for transfer taxes?
In Maryland and by extension, Howard County, the terms of the sales agreement will typically determine who is responsible for the transfer tax when a piece of property changes hands.
However, in cases where this is not made clear, it is assumed that the transfer tax liability will be split between the buyer and the seller (sometimes referred to as the grantee and grantor). There are also possible exemptions, such as if the buyer is a first-time buyer, meaning the seller is responsible for half of the tax (more on that in the next section).
What are the types of transfer taxes?
Transfer taxes can differ based on local regulations, but are generally categorized into three types: state, city, and county. Here’s a brief look at how this works in Howard County:
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 residence are eligible to be taxed at a rate of .25%. The other half
First-time home buyers are required to submit an exemption form to determine eligibility.
County transfer taxes
In Howard County, the county transfer tax rate is set at 1.25% of the home’s purchase price.
Other transfer fees
Beyond transfer taxes, there may be additional fees to consider, such as those from a homeowner’s association or local neighborhood organization. Since these can vary widely by location, consulting a professional is advisable.
If you’re selling your home without a realtor, seeking professional advice can clarify the process and help you understand what to expect regarding the pros and cons of selling a house without a realtor.
Are transfer taxes deductible?
Transfer taxes are, unfortunately, not eligible for tax deduction.
However, you can lower the amount you pay in capital gains taxes.
Capital gains, defined as the profit obtained from the sale of your home or the financial gain from selling your property, are subject to federal taxation just like profits from the sale of other assets.
According to the IRS, sellers can treat paid transfer taxes as selling costs, subtracting them from their home’s closing sale price. This allows them to minimize the capital gains taxes owed on any profit earned.
Howard County transfer tax exemptions
Not every Howard County real estate transaction is subject to transfer taxes. Here are a few examples where the transaction could be exempt:
- Commercial, Industrial, or Apartment Transfers of $5,000,000 or more
- Transfers with possible farm/agricultural issues or possible rezoning issues
- Transfers involving foreclosures or bankruptcies
- Condominium conversion transfers
- Vacant or unimproved land transfers with a builder involved
- Transfers involving a limited liability company
- Transfers involving the dissolution of a partnership, limited liability company, or corporation
- Transfers between related corporations
- Transfers to exempt organizations
Estimating your Howard County transfer taxes
To get a better idea of your potential profit from selling your Howard County home, consider using HomeLight’s Net Proceeds Calculator. This tool will help you estimate your closing costs, factoring in transfer taxes, agent fees, any improvements made to the property, and more.
Additionally, now might be a great time to consult a top Howard County real estate agent. They can provide you with valuable insights specific to your needs. HomeLight can connect you with a professional today, giving you the peace of mind you need to sell your home quickly and confidently.
Editor’s note: This post is intended for educational purposes and does not serve as legal or financial advice. References to Howard County area tax services or attorneys should not be viewed as endorsements.
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