Recordation Tax Definition

What Is Recordation Tax?

Recordation tax is an excise tax imposed by certain states as compensation for registering the purchase or sale of property as public record. It is collected by the county where the transaction takes place, with rates and rules varying depending on each jurisdiction’s tax laws.

Key Takeaways

  • Recordation tax is an excise tax imposed by certain states as compensation for registering the purchase or sale of property in the public domain.
  • It is collected by the county where the transaction takes place.
  • Recordation tax rules and rates vary depending on the state and/or counties within them.
  • Often the costs of entering a new mortgage and deed into a legal record fall under the more common transfer tax or may even be waived.

Understanding Recordation Tax

When you purchase a house, the local county lists mortgages and other liens against the property as well its title, the document proving legal ownership, in the public records. This is done, among other things, to help resolve disputes between parties with competing claims to a property. 

The costs of entering the new mortgage and deed into a legal record may be recouped with a transfer tax or even waived, depending on where the property is based. Alternatively, there are a handful of states that charge a specific recordation tax for this particular service.

Recordation tax forms part of the dreaded closing costs, which are expenses above the property price that buyers and sellers must clear to complete a real estate transaction, some of which are negotiable.

Under the federal Real Estate Settlement Procedures Act (RESPA), lenders are required to provide a loan estimate that discloses the closing costs for the transaction within three days of taking the borrower’s loan application.

Documents Subject to Recordation Tax

Instruments that incur recordation tax are generally those that convey title to real property or create or give notice of a security interest in real or personal property.

In Baltimore, for example, documents that are recorded and subject to recordation tax can include:

  • Association Liens
  • Certificate of Tax Sale
  • Contracts of Sale
  • Deeds
  • Deeds of Trust
  • Homestead Deed 
  • Indemnity Deed of Trust
  • Irrevocable Assignment of Proceeds
  • Land Installment Contracts 
  • Leases (including boat slip leases)
  • Memorandums of Lease
  • Mortgages
  • Options (if the option does not meet requirements for an exemption)

Recordation tax is usually paid by the buyer, although it is possible to negotiate for the seller to cover this expense.

Recordation Tax Examples

Recordation tax rules and rates vary depending on the state and/or counties within them. To get a better idea of how it works, let’s look at some examples from the few places that levy this tax.

District of Columbia

In Washington, D.C., a “deed recordation tax” is levied when a deed, certain leases, or a security interest in real property is submitted for recordation. The basis of the tax is the value of consideration given for the property or, if that’s not applicable, its fair market value. As of April 2022, the rate charged is 1.1% or 1.45%, with the higher percentage being applied to residential property transfers above $400,000. The District of Columbia also imposes a transfer tax at the same rates.

Maryland

The state of Maryland levies a recordation tax on instruments conveying title to the property at different rates, depending on the county. For instance, in Baltimore, Cecil County, and Wicomico County, recordation tax rates are set at $5, $4.10, and $3.50, respectively, per each $500, or fraction of $500, of the actual consideration paid or to be paid, or on the amount of debt secured.

Virginia

In the Old Dominion state, deeds submitted for recording are usually subject to a recordation tax at a rate of 25 cents on every $100, or fraction thereof, of the consideration of the deed or the actual value of the property conveyed, whichever is greater. That rate isn’t applied everywhere, though. Cities and counties within Virginia are free to impose a recordation tax equal to one-third of the amount set by the state.

Some people, such as first-time home buyers, may qualify for a reduced recordation tax rate in certain jurisdictions.

Recordation Tax vs. Transfer Tax

Many people confuse recordation tax with transfer tax, and it’s not hard to understand why. Transfer tax is a charge levied on the transfer of a property’s title, while recordation tax is defined as a charge levied for registering the purchase or sale of property in the public domain.

Recordation tax can be thought of as a type of transfer tax, because it relates to a cost incurred as part of the transfer of property from one party to another. A small handful of states choose to impose a separate recordation tax in recognition of this particular expense. Others, meanwhile, factor those fees into their transfer tax or don’t implicitly charge anything for this service.

An interesting distinction between these two taxes is who gets billed. Normally, the seller is liable for transfer tax. With recordation tax, on the other hand, it is the buyer who usually is charged.

Who Usually Pays the Recordation Tax in Virginia?

In Virginia, like other states, it is the buyer who is usually responsible for paying recordation tax.

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

The standard recordation tax rate in the District of Columbia is currently 1.1% or 1.45% of the property’s consideration or fair market value, with the higher value applying to transfers above $400,000.

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

Recordation tax in Howard County, Maryland, is set at $2.50 per each $500 or fractional part of the consideration.

https://www.investopedia.com/recordation-tax-5223398

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