Earlier this month, the DC Office of Tax and Revenue and the County Council of Montgomery County, Maryland, announced that on October 1, 2023, dramatic changes will be made with respect to transfer and recordation taxes on transfers of commercial properties. As such, those looking to make transfers may wish to expedite or delay closing dates to allow for preferential tax treatment.

Washington, DC

In 2019, the District of Columbia enacted the Recordation and Transfer Taxes Amendment Act of 2019^[1], which increased both the Real Estate Deed Recordation Tax and the Real Property Transfer Tax on the transfer and recordation of certain commercial and mixed-use real property from 1.45% to 2.5%. The total combined rate on these commercial real estate transfers rose from 2.9% to 5%, making such taxes among the highest in the nation.

The Act expires on September 30, 2023. The DC Council has debated extending the Act, but a proposed amendment to do so was later withdrawn. Provided the DC Council does not act, on October 1, 2023, these tax rates will revert to where they were prior to the 2019 increase. Specifically, the above-described transfers of real property will be subject to a 1.45% transfer tax and a 1.45% recordation tax, returning the total taxes back to 2.9%.

Montgomery County

In contrast to the upcoming tax changes in Washington, DC, recordation tax rates in Montgomery County will increase significantly on October 1, 2023. The amount of the increase varies based on the purchase price, but for real property over $1 million, the recordation tax will increase by approximately 60%.

For example, through September 30, 2023, a purchase or financing of real property for $5 million in Montgomery County is subject to a recordation tax of $65,200. Beginning October 1, 2023, such a purchase will be subject to a recordation tax of $105,050.

County transfer taxes in Montgomery County will remain at 1%, and Maryland state transfer taxes will remain unchanged, holding at 0.50%.

Next Steps

Based on the location of your real property, either expediting or postponing your closing date could result in substantial savings in taxes.

ArentFox Schiff will be monitoring any further developments in connection with these changes to transfer and recordation taxes. Those who may be impacted by these significant updates are encouraged to contact their usual ArentFox Schiff attorney or an author with any questions or concerns.

FOOTNOTES

[1] See Title VII, Subtitle C of the Fiscal Year 2020 Budget Support Act of 2019.