Many counties in Maryland recently changed their treatment of the Homestead Tax Credit when an estate is the seller. This new Recapture Tax comes as an unwelcome surprise to listing agents and personal representatives because it can drastically reduce seller net proceeds.
First, let’s talk about the Homestead Tax Credit (HTC). The HTC shields homeowners from drastic tax increases. The credit is reserved only for a principal residence. A homeowner is eligible to apply after they lived in the property for one year.
The HTC typically grows exponentially over time and limits any increase in taxes to no more than 3% to 10% a year (depending on the county). So as home values soar, your property tax bill does not.
In Year 1, the HTC may save a homeowner $50. After living in their home for 30 years, this annual savings may climb to $1,000 or more. But now … if the homeowner dies and THEN the property is sold, a portion of that savings is due back to the state and counties.
Now let’s see if this recapture tax applies to your seller and find how to estimate the expense.
This is when things get complicated.
You can always reach out to us, and we will assist with researching the online public records
and preparing estimates (it’s what we do ). Simply visit our Win Listings page to get started.
However, we are big believers that agents should learn it — and then leverage it. So here is how we do it:
1) Determine if the property has the Homestead Tax credit by visiting the Maryland Department of Assessment & Taxation.
2) Confirm the date of death by visiting the Registrar of Wills and performing an estate search.
3) Determine the amount of the credit by viewing the online tax bill.
4) Prorate the credit based on the estimated settlement date and the date of death to determine how much will be collected at closing. Enter this amount into your seller net sheet as a “Seller Expense.”
Access our online estimator tool to calculate your updated seller net sheets today.