Montgomery County Council President Nancy Floreen

Updated 9:25 a.m. – A proposed increase in the county property tax may not be the only tax hike county residents may face this year—a tax levied on home sales could rise as well.

Montgomery County Council President Nancy Floreen on Monday proposed increasing portions of the recordation tax, kown as the school increment and the recordation tax premium, to mostly help fund school construction and other projects.

The base rate of the recordation tax is $2.20 per every $500 on the sale price of a home. The base rate would not rise under Floreen’s bill. The school increment portion would rise from $1.25 per $500 of the sale price to $2 per $500 of the price. And the recordation tax premium, which is only applied to homes sold for more than $500,000, would increase from $1.55 per $500 to $2.30 per $500.

For example, a house that sold for $600,000 would result in a tax of $4,105 under the current recordation rates; that tax would increase to $5,080 under the proposed increase. A total of $8,105 in recordation taxes that would currently be imposed on the sale of a $1 million home would increase to $10,280 under the proposed increase.

Floreen said the tax raise would affect owners and buyers of higher-priced homes more than those who own or are buying homes priced at less than $500,000.

The county would generate an additional $185 million over the next six years in recordation taxes with the increase, according to a County Council memo. A total of $125 million of the expected revenue would go to Montgomery County Public Schools’ capital budget, while $30 million would go to other capital projects in the county and the last $30 million would be directed to rental assistance and affordable housing.

The bill would also affect homeowners who refinance their mortgages. The recordation tax is applied to the additional amount of money borrowed over the remaining principal in refinancing deals.

Floreen said the increase would create a “dedicated revenue stream” that would mostly be spent on one of the county’s highest priorities—upgrading and building county schools.

“[The tax] catches people at a time when money is being transferred,” Floreen said. “It doesn’t apply to everyone.”

She said she supports her proposal over simply raising the property tax, which would affect all homeowners, because most of the funds wouldn’t go into the general fund and instead would go to school construction projects.

The Greater Capital Area Association of Realtors, which represents nearly 10,000 real estate professionals in Montgomery County and Washington, D.C., quickly announced its opposition to Floreen’s proposal on Monday afternoon.

“It is unbelievable the Council would consider ramming through a $185 million tax increase with less than a month to go in the budget process,” Peg Mancuso, the group’s president, said according to a press release. “Worse still, Councilmember Floreen thinks it is okay to target one vitally important group, Montgomery County homebuyers, to pay for all her additional legislative needs and wants.” 

On Monday, Bethesda area real estate agent Jane Fairweather said increasing recordation tax rates would likely have the greatest impact on new buyers. She said home sellers and buyers in the area usually split the cost of recordation taxes.

“It’s a real barrier to a sale, especially for buyers trying to buy their first home,” Fairweather said. “It’s so much additional cash they’ll need to bring to the settlement table that it’s just not achievable for a lot of people. We don’t want to have a lot of buyers shut out, we want more buyers to come in.”

Fairweather called the proposed increase “short-sighted.” She also encouraged the council to compare the proposal to recordation tax rates in Northern Virginia and Washington D.C. to make sure the county’s rates won’t bebe significantly higher than other local jurisdictions.

“Has anyone in the county government looked at the impact of what this would do to the real estate market?” Fairweather asked.

Floreen is scheduled to introduce the bill calling for the proposed increase at the County Council meeting Tuesday and plans to schedule a public hearing. She said some of her fellow council members “have indicated support for this approach.”

“We’re working through a lot of details,” Floreen said. “We’re not at the end, but this is the first step forward.”

County Executive Ike Leggett revised his proposal to increase property tax rates earlier this month to 2.1 cents per $100 per assessed property value, a decrease from an initial proposal of 3.94 cents per $100 of assessed property value. The increase would result in the average county homeowner paying an extra $21.17 a month.

The council is expected to analyze the property tax increase as it weighs Leggett’s proposed $5.27 billion fiscal 2017 budget over the next two months. Floreen’s bill would be in addition to the proposed property tax and is not intended to replace it, the council member said Monday.