County Council Approves Recordation Tax Increases
Proceeds from tax on home sales to mostly fund school construction
The Montgomery County Council on Wednesday unanimously approved increases in the recordation tax that will result in homebuyers and sellers having to pay more when they sell or buy homes.
Council members said the increases were required to provide much-needed school construction funds as Montgomery County Public Schools experiences growing enrollment. The increase is expected to net the county about $200 million over the next six years. About $125 million of that new revenue will be directed toward school construction while the other $75 million will be used to build affordable housing and other infrastructure projects, according to council agenda documents prepared by the county’s Department of Finance.
“This is a tribute to our commitment to work with everybody and to address the capital needs of the school system,” County Council President Nancy Floreen said. “None of this easy, but you have to make hard decisions to move forward and address folks’ needs.”
Expected proceeds from the recordation tax increase will help the council to fund $1.72 billion of Montgomery County Public Schools’ six-year $1.73 billion capital budget request, council members said. Those funds will be used to complete expansions at Thomas S. Wootton High School and Walt Whitman High School in 2021 as well as additions to Thomas W. Pyle Middle School and Pine Crest Elementary School in 2020, among several other projects.
The recordation tax has three components—the base rate, set at $2.20 per $500 of a home’s sale price; the school increment, which is set at $1.25 per $500; and the recordation tax premium, which is set at $1.55 per $500, but is only applied to home sales or mortgage refinances over $500,000 and only to the amount that’s over $500,000. For example, a home sold for $700,000 would pay the recordation tax premium only on $200,000 of the $700,000 sale price.
Under the increase approved by the council, the base rate will remain the same, but the school increment will increase by $1 to $2.25 per $500 and the recordation tax premium will increase by 75 cents to $2.30 per $500. The proposal also increases the property tax by two-tenths of a cent per $100 of assessed value in order to raise an extra $3 million to cover additional school construction costs.
Typically the payment of recordation taxes are split between buyers and sellers. Here’s how much individuals would have to pay with the increase in recordation taxes, according to information provided to the council:
The council changed two facets of Floreen’s original proposal in an effort to reach a compromise with real estate agents who have opposed the increase. The council delayed the effective date of the increase from July 1 to Sept. 1 to give local agents more time to adjust to the change. The council also agreed to exempt the first $100,000 of a home’s cost instead of the initially proposed $50,000. Council members said this change would help reduce costs for first-time and low-income homebuyers.
Realtors pushed back against the proposed increases at a May public hearing during which they said the proposal will hurt first-time homebuyers who already face significant closing costs.
Lauren Kline, a Realtor for Long & Foster, wrote in an email to Bethesda Beat that the issue unfairly pit real estate professionals against advocates for schools. She wrote that Realtors “care very much about schools” but the effect of the tax increase “will disproportionately burden a small segment of the population and unintentionally cause more harm than good by impeding access to home ownership in [Montgomery County].”
Council member Marc Elrich said he supports revising the recordation tax at a later date if the county can provide accurate information about the price range of home sales in the county—such as how many homes sold for over $1 million.
“I’m looking at revising this and reducing the rate for lower-value homes and increasing the tax on higher-value homes,” Elrich said. “Hopefully we get this data as soon as possible.”
The council also unanimously approved a bill to enable senior citizens in the county to defer payments of increases in the property tax until they sell their homes. The bill was drafted to allow senior citizens to continue to pay the current property tax rate even if the council approves an increase, as is expected to happen Thursday. The bill allows the senior citizens to pay the difference between the current and increased rates when they sell their homes.
“I think this is a useful tool for our seniors who face a great deal of anxiety when property taxes are increased and wonder whether they’ll be able to stay in the homes,” council Vice President Roger Berliner said. “We want to give peace of mind to our seniors…we want you to be able to stay in your home.”
The council is expected to discuss a likely 6 percent to 9 percent property tax increase during its meeting Thursday as part of its efforts to finalize the county’s fiscal 2017 operating budget. The full $5.2 billion-plus budget is scheduled to be formally approved by the council May 26.