Most property owners are aware that transfer and recordation taxes must be paid when real estate is bought or sold. Such taxes are generally imposed on the recordation of a deed and are based on the consideration paid for the property. One method previously employed to avoid the imposition of such taxes involved the contribution of real estate to an entity, such as a limited liability company, followed by a sale of the interest in the entity. Under this strategy, effective ownership of the underlying real estate could be transferred, as a result of a change in the actual ownership of the entity, without having to record a deed, thereby avoiding the payment of transfer and recordation taxes.
Unfortunately for property owners, however, many states, including Maryland, have enacted statures (known as controlling interest statutes) designed to prevent the avoidance of transfer and recordation taxes through the use of the technique described above. Maryland's controlling interest statute, contained in Section 12-117 of the Tax-Property Article of the Annotated Code of Maryland (the "Statute"), imposes tax on the sale of an interest in an entity that owns real estate if two conditions exist. First, there must be a transfer of a "controlling interest" in an entity, and second, such entity must be a "real property entity."
Regarding the first condition, a "controlling interest" is defined as the ownership of more than 80% of the interests of the entity, e.g., more than 80% of the total value of the stock of a corporation, or more than 80% of the total interests of a limited liability company. Regarding the second condition , a "real property entity" is defined as an entity that owns real property , the value of which (i) constitutes at least 80% of the value of all of the entity's assets, and (ii) is at least $1,000,000.
If both conditions are satisfied, then the Statute imposes a tax on the transfer of the controlling interest in the real property entity in the same manner as if the real property owned by the entity was actually conveyed by an instrument recorded with the clerk of the circuit court for the county in which the property is located. Thus, the Statute can be a trap for the unwary because it imposes a transfer and recordation tax even though no document is recorded in connection with the sale and transfer of the controlling interest in the real property entity.
The Statute, however , provides for certain exceptions which, when coupled with careful planning, may allow a sale to be structured to avoid the imposition of tax. One such exception provides that no tax is due if the transfer of a controlling interest in a real property entity is effectuated in more than one transaction if the transfer is completed over a period of more than 12 months. Thus, application of the Statute may be avoided if the transfers that result in an ownership change of more than 80% can be spread out over more than 12 months. Caution must be exercised, however, in qualifYing under this exception, as a judicial principle exists that may allow the State to impose tax under the Statute where the facts and circ*mstances indicate that the transfers, which resulted in an ownership changeof more than 80% spread out over more than 12 months, were component parts of a pre-arranged plan with purpose of avoiding application of the Statute.
Another way to structure a transaction to avoid imposition of tax under the Statute is to transfer non real estate assets, e.g., cash, marketable securities, etc., to the entity so that less than 80% of the entity's value is comprised of real property, thereby ensuring that the entity does not meet the definition of a "real property entity." As discussed above, the Statute applies only to an entity in which more than 80% of its value is attributable to real property. Again, careful planning and structuring is necessary to prevent the State from successfully asserting that the structure was part of a pre-arranged plandesigned solely to avoid application of the Statute.
The Statute contains other exceptions that, depending upon the particular facts and circ*mstances, may allow property owners to avoid the imposition of tax under the Statute.
FAQs
The Maryland Report of Transfer of Controlling Interest, which the real property entity must use to report and pay the tax, requires breaking out the value attributable to each type of the real property entity's assets (Maryland real property, non-Maryland real property, cash, securities, etc.).
Who typically pays transfer tax in Maryland? ›
Normally a Maryland contract provides who is responsible for the payment of transfer and recordation taxes. If the contract is silent, Maryland law states the presumption is that the buyer and seller shall split the taxes provided the buyer does not qualify as a First Time Maryland Homebuyer.
What is the controlling interest statute in Maryland? ›
Maryland's controlling interest statute, contained in Section 12-117 of the Tax-Property Article of the Annotated Code of Maryland (the "Statute"), imposes tax on the sale of an interest in an entity that owns real estate if two conditions exist.
Are transfer taxes split in Maryland? ›
-The buyer is exempt from the state transfer tax if they are a first-time homebuyer in the state of Maryland. It is typical to split all the transfer taxes 50/50 between buyer and seller. The buyer's half of the state transfer tax is waived if a 'first time buyer'.
What is highest interest rate allowed by law in Maryland? ›
Each state has its own interest rate laws, that help consumers by placing a limit on the amount of interest a creditor can charge. The legal maximum in Maryland is 6%, but can be 8% under a written contract.
What percentage of ownership is considered controlling interest? ›
A shareholder has controlling interest in a business when he or she owns more than 50% of the company's voting shares, giving him or her the deciding voice in shareholder meetings and control over company direction.
How do I avoid capital gains tax in Maryland? ›
To be exempt, you need to have lived in the residence for at least two years and make less than $250,000 (or $500,000 as a couple) from the sale of the home. If you don't meet these qualifications, you must pay capital gains tax at the federal level.
Do first time home buyers pay transfer tax in Maryland? ›
Transfer tax is at the rate of . 5 percent of the actual consideration, unless they are a first-time Maryland home buyer purchasing a principal place of residence, in that case the transfer tax rate is . 25 percent of the actual consideration.
Do I have to pay transfer taxes on a refinance in Maryland? ›
Regarding transfer taxes, most jurisdictions in Maryland do not require you to pay new transfer taxes at the time of your refinance settlement. However, in most jurisdictions, you must pay the State Revenue Stamps (this amount varies by county) on the new money being borrowed.
What is the 3 year statute of limitations in Maryland? ›
The phrase "statute of limitations" refers to the limited period of time within which you can file a lawsuit against someone who harmed you. By default, in the state of Maryland, you have a period of three years after the act which caused you the harm to file a civil lawsuit.
Real estate need not be titled in the name of the fiduciary if (1) the real property lies in the county in which the court has assumed jurisdiction or (2) a copy of the court order or instrument naming the fiduciary has been filed in the land records in the Maryland county where the property is located (other than the ...
What is Maryland conflict of interest law? ›
A conflict of interest exists if: (1) the representation of one client will be directly adverse to another client; or (2) there is a significant risk that the representation of one or more clients will be materially limited by the attorney's responsibilities to another client, a former client or a third person or by a ...
What is Maryland's current transfer tax? ›
Maryland Transfer Tax and Recording Fees
| Jurisdiction/ Phone Number | County Transfer Tax Rate | State Transfer Tax Rate |
|---|
| Anne Arundel 410-222-1125 | 1.00% | 0.50% |
| Baltimore City 410-396-5122 | 1.50% | 0.50% |
| Baltimore County 410-887-2652 | 1.50% (note 1) | 0.50% |
| Calvert County 410-535-1660 | None | 0.50% |
21 more rowsState Transfer Tax
The tax is applied to instruments that transfer an interest in real property (deed, lease, easem*nt, contract, etc.). The tax is one half of 1 % (0.5%) of the consideration, except for deeds to a first time MARYLAND home buyer, in which case the tax is one fourth of 1 % (0.25%).
What states does Maryland have tax reciprocity with? ›
Maryland. Maryland has state tax reciprocity agreements with Pennsylvania, Virginia, West Virginia, and Washington, D.C.
Is 40% interest legal? ›
CALIFORNIA: The legal rate of interest is 10% for consumers; the general usury limit for non-consumers is more than 5% greater than the Federal Reserve Bank of San Francisco's rate.
What is an illegally high interest rate? ›
A usury interest rate is an interest rate deemed to be illegally high. To discourage predatory lending and promote economic activity, states may enact laws that set a ceiling on the interest rate that can be charged for certain types of debt.
What state has the highest usury rate? ›
Arguably the most unique set of procedures set forth by state usury laws is in Massachusetts, which has a broad usury rate of 20 percent.
What is an example of a controlling interest? ›
For example, 50% of all shares plus one share gives an investor a controlling interest. It is also possible to achieve a controlling interest when there is a separate class of voting stock, and the investor owns a majority of those shares.
Is a 50% interest a controlling interest? ›
Understanding a Controlling Interest
A controlling interest is, by definition, at least 50% of the outstanding shares of a given company plus one.
Understanding Schedule 13D
When a person or group of persons acquire a significant ownership stake in a company, characterized as more than 5% of a voting class of its publicly traded securities, the SEC requires that they disclose the purchase on a Schedule 13D form.
At what age do you stop paying property taxes in Maryland? ›
Be at least 65 years of age.
What is a simple trick for avoiding capital gains tax? ›
One of the easiest ways to evade paying capital gains tax after selling your rental property is to invest in a retirement plan. You can invest in a 401(K) or an individual retirement account (IRA). Retirement plans enable you to buy and sell property within the retirement account without attracting capital gains tax.
How do I flip my property to avoid capital gains tax? ›
Look into a 1031 Exchange
If you're looking to continually fix and flip and make your side hustle a full-time job, a 1031 like-kind exchange is a great tax strategy for flipping houses. In a 1031 exchange, you can defer capital gains tax liability on the sale of an investment property.
Who qualifies as a Maryland first-time home buyer? ›
In order to qualify as a First-Time Maryland Homebuyer, a Buyer must have never owned residential property in the State of Maryland that was their principal residence. It does not matter whether or not the property owner is a borrower on the Note.
What is the tax break for first-time home buyers in Maryland? ›
The value of this tax credit is 25% of the value of mortgage payments up to $2000. This credit can be claimed every year that you own your home. Eligible homeowners can apply for a Maryland HomeCredit through an approved mortgage lender.
Do you pay sales tax when you buy a house in Maryland? ›
The state transfer tax in Maryland is 0.5% of the sale price. Whether you have to pay a county transfer tax and how much the county transfer tax will be depends on the county your property's in.
Does refinancing count as selling a house on taxes? ›
No. Cash-out refinances allow you to borrow the equity you've built in your home. Since the cash you receive from the refinance is technically a loan that your lender expects you to pay back on time, the IRS won't consider that cash as taxable income.
Is refinancing your house a tax write off? ›
You can only deduct closing costs for a mortgage refinance if the costs are considered mortgage interest or real estate taxes. You closing costs are not tax deductible if they are fees for services, like title insurance and appraisals.
How much does a title search cost in Maryland? ›
Title Search Fee:
In Maryland, the title search costs around $300 to $600. A title search is often mistaken for a home inspection.
Intentional Infliction of Emotional Distress
Conduct must be intentional or reckless; Conduct must be extreme and outrageous; There must be a causal connection between the wrongful conduct and the emotional distress. Emotional distress must be severe.
What is the 12 year statute of limitations in Maryland? ›
The 12-year limit starts at the date of the judgment, which is often the date the creditor went to court. If a court ordered you to pay a creditor money more than 12 years ago, the creditor will not be able to enforce that debt against you. This means they will not be able to garnish your wages or attach your property.
Does Maryland have a discovery rule? ›
The Maryland Rules encourage broad discovery. Generally, information that is "not privileged" and "relevant to the subject matter involved in the action" is discoverable.
What is Maryland Rule 14 210? ›
An individual who is required by this Rule to give notice by mail shall file an affidavit stating that (1) the individual has complied with the mailing provisions of this Rule or (2) the identity or address of the borrower, record owner, or holder of a subordinate interest is not reasonably ascertainable.
What is Maryland Rule 252? ›
Rule 4-252 states that a motion to suppress an unlawful search, seizure, interception of wire or oral communication, or pretrial identification must be raised within 30 days after the earlier of the appearance of counsel, or the first appearance of the defendant.
What is Maryland Rule 15 206? ›
Rule 15-206 - Constructive Civil Contempt (a) Where Filed. A proceeding for constructive civil contempt shall be included in the action in which the alleged contempt occurred.
What is the rule 19-301.8 in Maryland? ›
Rule 19-301.8 - Conflict of Interest; Current Clients; Specific Rules (1.8) (a) An attorney shall not enter into a business transaction with a client unless: (1) the transaction and terms on which the attorney acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing ...
What is the rule 19-301.9 in Maryland? ›
Rule 19-301.9 - Duties to Former Clients (1.9) (a) An attorney who has formerly represented a client in a matter shall not thereafter represent another person in the same or a substantially related matter in which that person's interests are materially adverse to the interests of the former client unless the former ...
What is a breach of conflict of interest? ›
Any failure to disclose a conflict of interest or conduct which favours a personal or professional interest is in breach of this policy and may subject you to serious adverse consequences.
What does transfer of controlling interest mean? ›
When there is a transfer or acquisition of a controlling interest in a partnership, corporation, or other entity with an interest in real property, the change in ownership of the entity results in a conveyance of the underlying real property subject to the real estate transfer tax.
Any means by which the ownership of property changes hands.
What is the transfer tax on property to an LLC in Maryland? ›
The State transfer tax rate is 0.5% of the consideration payable for an instrument of writing conveying title to, or a leasehold interest in, real property.
Can a joint tenant transfer their interest in Maryland? ›
A tenant in common can transfer their property interest via a will. If the tenant in common dies without a will (intestate) then Maryland's intestacy laws would apply to that tenant in common's share of the property.
