Recordation Tax Definition

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Recordation Tax Definition

What Is Recordation Tax?

Certain states levy a recordation tax as compensation for registering the acquisition or transfer of property as a public record. It is collected by the county in where the transaction occurs, with rates and restrictions differing according to the tax legislation of each jurisdiction.

Key Takeaways

  • Certain governments levy a recordation tax as compensation for recording the acquisition or transfer of property in the public domain.
  • It is collected by the county in where the transaction occurs.
  • The laws and rates for recording taxes differ based on the state and/or counties within it.
  • The expenses of establishing a new mortgage and deedinto a legal record are sometimes included in the more typical transfer tax or are even eliminated.

Understanding Recordation Tax

When you buy a home, the local county registers mortgages and other liens against the property, as well as the title, the document showing legal possession. This is done, among other things, to assist in the resolution of conflicts between parties that have conflicting claims to a property.

Depending on where the property is located, the expenses of putting the new mortgage and deedinto a legal record may be recouped with a transfer tax or even eliminated. Alternatively, there are a few states that levy a recordation tax for this function.

Recordation tax is included in the dreaded closing costs, which are fees in excess of the property price that purchasers and sellers must pay in order to complete a real estate transaction, some of which are negotiable.

Lenders are obliged by the federal Real Estate Settlement Procedures Act (RESPA) to produce a loan estimate that reveals the closing costs for the transaction within three days of receiving the borrower’s loan application.

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Documents subject to recordation tax

Generally, instruments that transmit title to real property or establish or provide notice of a security interest in real or personal property are subject to recordation tax.

Documents registered and subject to recordation tax in Baltimore, for example, might include:

  • Association liens
  • Certificate of tax sale
  • Contracts of sale
  • Deeds
  • Deeds of trust
  • Homestead deed
  • Indemnity deed of trust
  • Proceeds are irrevocably assigned.
  • Land installment contracts
  • Leases (including boat slip leases) (including boat slip leases)
  • Memoranda of leases
  • Mortgages
  • Options (if the alternative does not match the qualifications for an exemption) (if the option does not meet the requirements for an exemption)

Recordation tax is typically paid by the buyer, however the seller might be persuaded to absorb this expenditure.

Recordation Tax Examples

The laws and rates for recording taxes differ based on the state and/or counties within it. To further understand how this works, consider these instances from the few areas where this tax is levied.

District of Columbia

When a deed, certain leases, or a security interest in real property is filed for recording in Washington, D.C., a “deed recordation tax” is charged. The tax is based on the amount of consideration paid for the property or, if that is not relevant, its fair market value. The rate imposed as of April 2022 is 1.1% or 1.45%, with the greater proportion applied to residential property transactions exceeding $400,000. The District of Columbia levies a transfer tax at the same rates as the rest of the country.

Maryland

The state of Maryland charges a recordation tax on documents transferring title to property, with rates varying by county. For example, recordation tax rates in Baltimore, Cecil County, and Wicomico County are set at $5, $4.10, and $3.50, respectively, per $500, or fraction of $500, of real consideration paid or to be paid, or on the amount of debt secured.

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Virginia

Deeds filed for registration in the Old Dominion state are normally subject to a recordation tax of 25 cents on every $100 (or fraction thereof) of the consideration of the deed or the actual worth of the property transferred, whichever is larger. However, such rate is not used everywhere. Cities and counties in Virginia are allowed to levy a recordation tax equivalent to one-third of the state-imposed sum.

In certain jurisdictions, certain individuals, such as first-time homeowners, may be eligible for a lower recordation tax rate.

Recordation Tax vs. Transfer Tax

Many people mix up recordation tax with transfer tax, and it’s easy to see why. Transfer tax is a fee charged for transferring the title to a property, while recordation tax is a fee charged for recording the acquisition or sale of property in the public domain.

Because it is a fee borne as part of the transfer of property from one party to another, recording tax may be considered of as a sort of transfer tax. In acknowledgement of this unique burden, a limited number of governments levy a distinct recordation tax. Others, on the other hand, include such costs in their transfer tax or do not charge anything for this service.

Who gets billed is an important contrast between these two taxes. Typically, the seller is responsible for the transfer tax. In the case of recordation tax, however, the buyer is normally charged.

Who Usually Pays the Recordation Tax in Virginia?

In Virginia, like in other jurisdictions, the buyer is typically responsible for paying the recordation tax.

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What Is the Recordation Tax in Washington, D.C.?

In the District of Columbia, the standard recordation tax rate is now 1.1% or 1.45% of the property’s consideration or fair market value, with the greater value applied to transactions above $400,000.

What Is the Recordation Tax in Howard County, Md.?

In Howard County, Maryland, the recording tax is fixed at $2.50 per $500 or fractional portion of the consideration.

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