Home Buyer Tax Credits in MD and Washington DC

State Transfer Tax Credit in Maryland

The State of Maryland provides a credit to first-time home buyers at the time of purchase by exempting them from paying the buyer’s portion of the State transfer tax, which is .25% of the sales price.  The State transfer tax is .5% total, typically split 50-50 between the buyer and seller.  The State of Maryland waives the buyer portion of .25% for first-time Maryland home buyers.

A Maryland first-time home buyer is defined as someone who has NEVER owned a home in the State of Maryland.  If more than one person is purchasing the home, all parties must be considered first-time Maryland home buyers in order to qualify.  If one of the parties has previously owned property in Maryland, then the credit does not apply.

Homestead Tax Credit in Maryland

The Homestead Property Tax credit was established to reduce the property tax burden on homeowners.   It limits the taxable assessment increases to a certain percentage or less each year on a principal residence in Maryland.  The percentage increase allowed varies by County.  Even if the property value increases by more than the allowed increase percentage, the homeowner will not pay taxes on any market increase over that amount.   

For example, in Montgomery County the property tax increases are limited to no more than 10%.  If your property assessment rose from $350,000 to $400,000 in one year (about a 14% increase), the property tax is calculated on the full assessment, but you would receive a homestead credit on your property tax bill for the amount over 10%.  You would only pay taxes on $385,000 (a 10% increase over $350,000) and a tax credit is then applied to the remaining $15,000 of property value.

A homeowner can receive the tax credit on only one property, their principal residence.  They must reside at that property for at least six months of the year during which they are claiming the credit.  In addition, there is a one-time application that all homeowners must submit to establish eligibility for the credit.

First-Time Home Buyer Credit in Washington DC

The first-time home buyer credit in Washington DC provides a federal tax credit up to $5,000 for home buyers who are purchasing their first primary residence in the District of Columbia.  The amount of the tax credit is based on the home buyer’s modified adjusted gross income.  If an individual taxpayer’s income is $70,000 or less, (or $110,000 or less for married taxpayers filing jointly) then they would qualify for the full $5,000 credit.  Individual taxpayers are eligible for partial credits, until their income exceeds $90,000.  The credit phases out for married taxpayers filing jointly once their income exceeds $130,000. 

You are eligible for the credit even if you own property outside of the District, but are a first-time home buyer within the district.  A first-time home buyer for the D.C. tax credit is defined as someone who has not owned property in DC during the one year period ending on the date of the purchase.  To claim the credit, use IRS form 8859 District of Columbia First Time Homebuyer Credit.

If you have any questions about any of the home buyer credits, please contact us at
301-610-7777 or by email at support@rsititle.com.

DISCLAIMER: This information is intended for educational purposes only and does not constitute legal advice. You should not rely or act upon any information contained in this article without seeking the advice of qualified legal counsel.

 

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