Keeping it simple the bureaucratic way

Great News! As you should know by now Montgomery County Maryland has increased the recordation tax on home purchases over $500k, and cash-out refi's with loan amounts over $500k. Clearly this won't be an issue since only rich people buy homes over $500k. Sure the median home price on all sales including condos is over $500k, but this is Montgomery County! We're rich man!

Here's how it works: You buy a home for $650k. The first $50k of consideration is exempt from recoding tax (principal residence) - the next $450k of consideration is taxed at a recordation rate of $6.90 per $1000 - the remaining $150k of consideration is taxed at a recordation rate of $10 per $1000. Now on a purchase you still have the 1.5% transfer tax so the total tax (recordation & transfer) would be $14,355. Now it's really not that much since the seller can pick up a portion of the tax, and the seller dosen't need that money anyway. See how easy that is.

Obviously the benefits of raising the recordation tax are unmistakable - motivate people to buy homes in this flourishing market, incent borrowers to draw equity for home improvements/debt consolidation/college education, and stimulate the local economy. Luckly they're doing this now since timing is everything. I should know, I've been watching this new show on TV where people make a killing in California "flipping houses." I think I may try my luck at flipping since there's no better time to start than the present. Wish me luck!

For refinances, the following three examples summarize the change:

Example

Existing Loan: $500,000

New Loan: $600,000

Cash out of $100,000 taxed at $10/thousand because the loan exceeded

$500,000.

Example

Existing Loan: $400,000

New Loan: $450,000

Cash out of $50,000 taxed at $6.90/thousand because loan is less than $500,000

Example

Existing Loan: $450,000

New Loan $700,000

Cash out of $250,000 is taxed at $6.90/thousand for the first $50,000 (until you reach the $500,000 point) then the remaining $200,000 is taxed at the rate of $10.00/thousand (as you have exceeded $500,000)