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Additional Nelson Mullins Alerts

May 22, 2023

Increased Recordation Tax Rates and Property Taxes in Montgomery County, Maryland

On May 9, 2023, the Montgomery County, Maryland Council voted 7-4 in favor of increasing its real estate recordation tax by enacting Bill 17-23, Taxation – Recordation Tax Rates – Amendments. Councilmember Kristin Mink was the lead sponsor of the bill, and councilmember Will Jawando was a co-sponsor. 

The recordation tax is a one-time cost to register a purchase, sale, or financing of real estate as public record. On a purchase or sale of real estate, the tax is on the consideration. On a mortgage or deed of trust, the tax applies to the amount of new debt, i.e., on a purchase or sale, it applies to the mortgage principal; on a refinance, it applies to any amount greater than the original principal refinanced.

Montgomery County recordation taxes have three components: 

  1. A base rate of $2.08 for each $500 on the sale price or new debt, the proceeds of which are allocated to the County’s general fund, 
  2. a school increment of $2.37 for each $500, the proceeds of which are allocated for capital projects of Montgomery County Public Schools, and 
  3. a recordation tax premium of $2.30 for each $500 for values over $500,000.

Beginning Oct. 1 this year, recordation tax rates will increase by leaving the base rate and school increment unchanged, but increasing the recordation premium from $2.30 per $500 as follows:

  1. For recordation value between $500,000 and $600,000, the rate remains unchanged at $2.30/$500.
  2. For recordation value between $600,001 and $750,000, the rate will be $5.75/$500, a 150% increase over the current rate.
  3. For recordation value between $750,001 and $1,000,000, the rate will be $6.33/$500, a 175% increase over the current rate.
  4. For recordation value above $1 million, the rate will be $6.90/$500, a 200% increase over the current rate.

Tax proceeds from the recordation premium will be split into equal thirds between Montgomery County government capital projects, public school capital projects, and rent assistance in the Housing Initiative Fund.

The Montgomery County transfer tax remains unchanged at 1%.

This all comes on the heels of recently proposed rent regulation legislation and other tax increases all to meet the County’s ballooning costs of education mandates and housing needs.

Earlier this year, the County Executive proposed a budget that includes a 10-cent hike in the property tax rate of approximately $0.99 per $100 of assessed value, which is an approximately 10% increase in property taxes. The proposed budget now heads to the Montgomery County Council for deliberation and final action by June 1. The Council has signaled they will not approve the 10% tax hike but are targeting a 4.7% property tax increase instead. 

On rent regulations, Councilmembers Mink and Jawando, backed by Montgomery County Executive Marc Elrich, recently introduced the Housing Opportunity Mobility and Equity (HOME) Act, a rent regulation bill that would limit yearly rent increases to 3% or the County’s voluntary rent guidelines, whichever is lower. Six of eleven councilmembers have also proposed a competing rent regulation bill (the “Anti Rent Gouging Protections Bill”) that caps rent increases at CPI plus 8%, with certain rare hardship exemptions.

Local taxing jurisdictions are closely watching one another, so we should expect similar legislation to cross regional borders. For example, the District of Columbia has recently looked at increasing the scope of its own rent regulations and Prince George’s County – with analogous school funding problems and a smaller commercial tax base – has enacted its own stringent rent regulation legislation and is also likely to see future property tax increases.

For more information on how this can affect your deals and properties in Montgomery County and the DMV, please reach out to me or your Nelson Mullins contact. We are happy to advise.

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