Transfer and Recordation Tax Changes in the Greater D.C. Metro Area 

District of Columbia

In 2019, the District of Columbia enacted legislation that raised recordation and transfer taxes on the transfer of commercial and mixed-use real estate from 1.45% to 2.5%, provided the consideration for the real property was at least $2 million. As a result, the total combined rate on those transfers increased from 2.9% to 5%, which made D.C.’s rates among the highest in the nation. 

However, that substantial increase to the cost of transferring commercial real property expired September 30; effective October 1, all transfers of commercial real property are subject to a combined recordation and transfer tax rate of 2.9% without regard to any consideration thresholds. According to the Office of Tax and Revenue (OTR Tax Notice 2023-06), an updated version of Form FP-7/C, “Real Property Recordation and Transfer Tax Form,” accounting for the reversion in the tax rates is now available.

Those rate changes affect not only the direct transfer – that is, via deed – of such specified real property in D.C. but also the transfer of an economic interest in real property, which occurs on the transfer of a controlling interest in a legal entity that satisfies a gross receipts or tangible asset test. The District of Columbia is one of approximately 17 U.S. jurisdictions that imposes transfer and recordation tax on such legal entity transactions, which is commonly referred to as a controlling interest transfer tax. 

Montgomery County, Maryland

Effective October 1, 2023, the Montgomery County recordation tax rate underwent major changes pursuant to Bill 17-23, which predominantly affects the premium rate tiers for real property when the consideration paid exceeds $500,000. Previously, in addition to the base rate and school increment rate, the county recordation tax included a single premium rate of $2.30 per every $500. However, three progressive premium rates have been added, with the highest tier imposed at $6.90 per every $500 for real property transfers when the consideration paid is greater than $1 million. Despite those changes, county transfer taxes in Montgomery County remain at 1%, and the Maryland state transfer taxes stay consistent at 0.5%.

As in the District of Columbia, the changes to Montgomery County’s recordation tax rates affect the indirect transfer of real property via a legal entity transfer. Maryland imposes recordation and transfer taxes on the transfer of a controlling interest in a legal entity that holds real property in Maryland, provided the entity constitutes a real property entity. 

The nuances of Maryland’s controlling interest transfer tax, including the definition of the term “real property entity,” are beyond the scope of this alert. 

BDO Insights 

BDO’s real estate transfer tax team assists clients nationwide with the acquisition and disposition of real property, as well as the exploration of tax mitigation strategies. The team also has vast experience analyzing real estate transfer tax provisions that may apply to the transfer of a legal entity that holds real property, which are often complex and have minimal guidance.

Contact BDO’s real estate transfer tax team to discuss the recordation/transfer tax implications of any contemplated sales or transfers of real property in D.C. or Maryland or transactions involving entities that directly or indirectly own real property in those locations.