Are you buying or selling a home in Anne Arundel County? If so, you might have a lot of questions about closing costs, especially transfer taxes. Does Anne Arundel County even have a transfer tax? How much is it? Who is responsible for paying it? How do transfer taxes work in Maryland?
This guide will explain how the Anne Arundel County transfer tax works: what it costs and who pays for it. We will also provide a list of exemptions you might qualify for and break down how transfer taxes apply to capital gains.
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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 that verifies your 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. Different states, counties, and cities establish their rates and regulations for these taxes. Transfer taxes primarily serve as a means for local and state governments to generate revenue, which helps fund various public services and infrastructure projects.
Who pays for transfer taxes?
Both the buyer and the seller of a property are responsible for transfer taxes in Anne Arundel County. Typically, the buyer and the seller (sometimes referred to as the “grantee” and “grantor”, respectively) will split these costs, which are usually negotiated as part of the sales agreement.
This is generally true for all Maryland real estate transactions, but will vary based on the location. There are also several exemptions that can apply, which we will discuss later in this guide.
What are the types of transfer taxes?
Transfer taxes typically vary according to local regulations but can generally be categorized into three types — state, city, and county, depending on the state. Here’s a brief overview of how it works in Anne Arundel County.
State transfer taxes
For property transfers in Maryland, a documentary transfer tax of 0.5% of the home value is applied. However, additional taxes may apply based on your specific location within Maryland.
County transfer taxes
In Anne Arundel County, the county transfer tax rate is set at 1% for transactions under $1 million, and 1.5% for those at $1 million or more. This only applies when a property changes hands.
Anne Arundel County also charges a Recordation Tax, levied at a rate of $7.00 per $1,000 of the property’s sales price. This tax applies to any transaction that causes a change in real property ownership or that creates a security interest. A security interest will usually apply to a mortgage or trust transfer, for example.
Other transfer fees
Beyond transfer taxes, there may be additional fees to keep in mind, such as those from a homeowner’s association or other local neighborhood organizations. Since these can vary widely based on location, consulting a professional is advisable.
If you’re selling your home as a for-sale-by-owner, seeking professional advice might clarify some of the nuances of the process and provide a better understanding of what to expect regarding the pros and cons of selling a house without a realtor.
Are transfer taxes deductible?
Transfer taxes are not tax-deductible, but they can be used to lower what you might pay in capital gains taxes.
Capital gains are defined as the profit obtained from the sale of your home or the financial gain from selling your property. These are subject to federal taxation just like profits from the sale of other assets.
According to the IRS, sellers have the option to treat paid transfer taxes as selling costs, allowing them to subtract these from their home’s closing sale price. By doing so, they can diminish the capital gains taxes owed on any profit earned.
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
To accurately estimate the potential proceeds from selling your Anne Arundel County home, consider using HomeLight’s Net Proceeds Calculator. This tool accounts for essential costs such as closing expenses, transfer taxes, agent fees, and any improvements made to the property, providing a clear estimate of your potential earnings from the sale.
Transfer taxes and other closing costs can sometimes be negotiated, depending on market conditions. Additionally, collaborating with a top real estate agent can offer valuable insights tailored to your specific situation.
Editor’s note: This post is intended for educational purposes only and does not serve as legal or financial advice. References to Anne Arundel County area tax services or attorneys should not be viewed as endorsements.
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