Q: We are absolutely furious. We just left a settlement where we were the sellers of property in Montgomery County.The settlement attorney hit us with a whopping settlement cost, which he called a "recapture tax."
Neither the real estate agent nor the settlement attorney were able to fully explain what this recapture tax is all about. Can you explain, and is it legal? Can we do anything to protest?
A: Apparently the Montgomery County Council is not satisfied with charging purchasers a 1 percent transfer tax so they decided last year to enact the so-called "recapture tax."
In legal terms, the Real Property Tax Recapture (Bill No. 8-77, effective September 12, 1977) is "applicable to any transfer of property or portion therof when the taxable value as of the date of recognition (transfer date) exceeds the assessed valuation of such property."
In simple English this means that you, the seller are responsible to pay a tax if your selling price was higher than the assessment on which your rela taxes have been based.
There is a rather complex formula that can be found on the "real property tax recapture form," which must be filed when a deed to property in Montgomery County is recorded in the county courthouse.
Basically, the tax applies only in those cases where there is a big difference between the assessed valuation for tax purposes and the sales price.
To determine whether you will have to pay this recapture tax, here is the formula: 1. Calculate 45 percent of your contract sales price.
2. Subtract the assessed value.Call the Finance Office (279-1701 or 279-1601) for this figure).
3. Subtract $8,000 (an initial exemptation).
4. If there remains a balance, the recapture tax must be paid, and it is based on a rate of $3.70 per hundred.
There is a basic presumption in the law that every act enacted by a legislative body is valid and consitutional, unless otherwise determined by a court of law. At the present time, this recapture tax is enforceable, and you cannot transfer property in Montgomery County without submitting the appropriate form, and any tax if due.
There may be hope, however, for the future. The Montgomery County Board of Realtors has filed a suit challenging the legality and constitutionality of this recapture tax. Needless to say, this kind of court case takes a long time, and no decision has yet been made.
In the interim, it is recommended that all sellers of property in Montgomery County pay the recapture tax, if applicable, "under protest." Thus, every seller of a property for which a rax is due should write on the form "we protest this tax." Maybe, if the courts find this tax invalid, sellers in Montgomery County will get their money back.
Benny L. Kass is a Washington Post attorney. Write to him in care of the Real Estate section, The Washington Post, 1150 15th St. NW, Washington 20071.