Reduced Government Transfer Taxes for First Time Homebuyers

April 28th, 2024

house sitting on pennies

Government transfer taxes can consist of some or all the following: transfer tax, recordation tax, and tax stamps. These are one time taxes charged by a state or jurisdiction upon the transfer of real estate. They are based on the sales price of the real estate being transferred to the new owner. These taxes are simply a tax on the transfer of property.

If there is a mortgage on the new property, then there is also tax stamps or a recordation tax to record the mortgage. It may be customary in most areas for the buyer and seller to split these taxes. But it’s always good to check and see what is customary in your area, or if a seller expects those to be negotiated.

In Washington DC

Many areas have a reduced transfer tax for first time homebuyers. This holds true for Washington DC.

The full Recordation Taxes due from people who are not first time homebuyers are:

  • For properties priced at $400,000 or lower, 1.1% of the sales price is due from the homebuyer.
  • For properties priced over $400,000, 1.45% of the sales price is due from the homebuyer.
  • The seller pays an equal amount in transfer taxes.

If you are eligible for the reduced Recordation Tax the reduced taxes are:

  • For properties priced at $400,000 or lower, .725% of the sales price is due from the homebuyer.
  • For properties priced over $400,000, .725% of the sales price is due from the homebuyer.
  • The transfer taxes that the seller is responsible for paying do not change based on the homebuyer’s first time homebuyer status.

Washington DC guidelines

However, there are many guidelines one must follow. Some of those guidelines are below for those purchasing homes and condos in Washington DC.

  1. The applicant must be a first time homebuyer in Washington DC.
  2. The sales price cannot exceed $730,000.
  3. The gross income limits to qualify for this reduced tax are:

$189,900 is the income limit for Persons in a household of 1.

$217,080 is the income limit for Persons in a household of 2.

$244,260 is the income limit for Persons in a household of 3.

$271,260 is the income limit for Persons in a household of 4.

$293,040 is the income limit for Persons in a household of 5.

$314,820 is the income limit for Persons in a household of 6.

$336,420 is the income limit for Persons in a household of 7.

$358,200 is the income limit for Persons in a household of 8.

  1. You must count all individuals listed on the deed, whether residing in the property or not, plus individuals not listed on the deed who reside or will reside in the property. They will have to provide a copy of their U.S. Individual Tax Return (Form 1040) that was filed immediately prior to closing and recording of the deed.
  2. File the DC Homestead Deduction application.
  3. An application for the reduced rate must be made at the time the deed is offered for recordation. The reduced rate cannot be applied for after the deed is recorded.

More details related to Washington DC first time homebuyer transfer and recordation taxes can be seen here: https://otr.cfo.dc.gov/publication/reduced-recordation-tax-rate-first-time-homebuyers

In Virginia

The state of Virginia does not have reduced transfer taxes for first time homebuyers. But they have other programs instead.

The state of Virginia allows a tax-free savings account to be used by eligible first time homebuyers for down payment and closing costs. For more on that topic read this: https://www.tax.virginia.gov/first-time-home-buyer-savings-accounts-guidelines

A homebuyer may be eligible for a mortgage credit certificate. This allows first time homebuyers to claim a tax credit of 10% annual mortgage interest. You must live in the home as your primary residence. And you must have a tax liability that the credit would offset.

You also must meet certain income and house price limits.

Also, the state of Virginia is somewhat unique in what figure it may use for the taxes. Virginia will tax you on the assessed property tax value if that figure is higher than the contract price. However, if the assessed value is lower than the contract price, you will get taxed on the contract price.

It is usually customary in Virginia for the buyer and seller to split these taxes. But always confirm if these are to be negotiated or split.

Cities throughout the state may impose an additional transfer tax, especially cities in Northern Virginia.

Click here for a calculator for some Virginia counties, to get an estimate of transfer and recordation taxes. However, the tax amounts in Virginia can be difficult to compute. They vary depending on the county you are buying in. Talk to a mortgage loan officer to get specifics on your scenario.

In Maryland

In Maryland a homebuyer pays the state and county transfer taxes, as well as the county recordation tax. It is customary for the seller and the buyer to split the amounts equally. When you purchase a home in the state of Maryland there is a 0.5% state transfer tax. If you’re a qualified first-time Maryland homebuyer this gets reduced to 0.25%. This will need to be written into the contract of sale.

Click here for the website of a Maryland title company that reviews the amounts of the state taxes along with some of the various county taxes.

And a good Montgomery County MD transfer tax calculator can be seen here: https://gcaar.com/government-affairs/montgomerycounty/recordation-tax-calculator

However, there are many guidelines one must follow. Some of those guidelines are below:

  1. A First-Time Maryland Homebuyer means any individual who has never owned a home that is a primary residence in the State of MD. If your name has been on a title to a MD home, and you lived in that home, ever, you are not eligible for the reduced tax.
  2. You are considered a homeowner if you have ever been on title to a MD property and lived in that home. This is so even if you were just added to a title for estate planning reasons. When you are on title you are an owner.
  3. If more than one homebuyer is buying a home, and any of those homebuyers has previously owned a principal residence in MD, no one will be eligible for the reduced tax. All buyers of a home must be first time MD homebuyers to be eligible for the reduced tax.

In Texas

Unlike many other states, Texas does not impose a state transfer tax on real estate transactions. However, property taxes in Texas are quite a bit higher than average. I’m sure there are pros and cons in every state when you sum up all the costs of owning a home.

Other states

There are other states that do not charge real estate transfer taxes, such as Alaska, Idaho, Indiana, Louisiana, Kansas, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon, Utah, and Wyoming.

However, there may be transfer taxes for real estate at the county and city level, even if state transfer taxes are not charged.

Conclusion

As you can see each county and state has many variables. A first time homebuyer should always double check with an experienced mortgage lender to see what they may or may not be eligible for in the way of costs, loan programs, credit score improvement, and many other things related to getting a mortgage.

For questions on transfer and recordation taxes or other mortgage questions, click here to schedule a call or you can email me directly.

Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.

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