Last week, the Montgomery County Council approved an increase on the County’s recordation tax in order to support funding to decrease school overcrowding.
The council voted unanimously May 18 to increase the recordation tax, which levied when a home is bought, sold or refinanced. Now the recordation tax on a $400,000 home will increased from $2,415 to $2670 and for a $500,000 home the recordation tax will be increased from $3,105 to $3,560.
The council voted to increase the recordation tax by $1 per $500 of assessed value for housing transactions and 75 cents per $500 on the recordation tax premium for homes accessed at $500,000 and over.
Council members expect the tax to generate $200 million over six years. The revenue is set to pay for school construction for Montgomery County Public Schools as well as infrastructure improvements.
County Council President Nancy Floreen (D-At large) proposed the bill citing a need to alleviate overcrowded schools in the county.
“While nobody likes the idea of increasing taxes of any kind, our needs are great, and the recordation tax is the most progressive approach to meet the needs our residents have clearly identified as their top priorities,” Floreen said. “The recordation tax is just one piece of what I call an ‘education first’ budget that will finally give our students some long-overdue relief.”
The recordation tax is levied when a home is sold or refinanced and is generally split between the seller and the buyer.
While most residents will not have to pay the recordation tax, those who chose to refinance their home or buy or sell a home in the County will have to pay two tax increases: an 8.4 percent increase in property taxes as well an addition increase on the recordation tax.
The bill includes a recordation tax premium for homes assessed at more than $500,000.
Additionally, the bill increased the homebuyer exemption from $50,000 to $100,000 to offer relief to first time homebuyers.
New tax revenue from the bill costing $170 million is designated for completing renovations at Thomas S. Wootton High School and Walt Whitman High School by August 2021.
The recordation tax will also fund previously unfunded East Silver Spring and Greencastle additions and help fund renovations at Thomas W. Pyle Middle School and Pine Crest Elementary.
Despite the benefits for MCPS, members of the public spoke out against the tax increase
While PTA leaders testified to the council for funding to combat overcrowded schools, real estate agents warned the council the bill could hurt the County’s housing market.
“I think it really harms the entry level buyer,” said Bethesda real estate agent Jane Fairweather.
Fairweather said the recordation tax increase could dissuade potential buyers from moving to Montgomery County, opting for other cheaper housing markets in the Washington metropolitan area.
“Buyers do definitely compare properties here and properties in Virginia because Virginia has good schools,” Fairweather said.
Additionally, $15 million from the recordation tax will be used to fund sidewalk and bike lane repairs on Bradley Boulevard and Franklin Avenue as well as renovate Ovid Hazen Wells Park in Clarksburg.
The bill’s implementation will be delayed to Sept.1 in order to provide real estate agents time to adjust to the tax increase.