RECAPTURE OF PROPERTY TAXES

Some of the local jurisdictions offer property tax benefits to residents based on their age, income, disability, or residency status. Once a resident no longer qualifies for such tax benefits, the tax collector may seek to recapture that tax benefit dating back to when the owner’s status changed.  This tax is typically collected at closing and can come as a surprise to a seller.

The tax benefit that a seller was getting does not extend to the new homeowner unless they independently qualify for such benefit.
In Montgomery County, homeowners who occupy their residence currently receive a $692 credit on their tax bill. If the homeowner did not live in the property on June 30th, the Treasury Department may recapture that tax credit. This will often be the case when the homeowner has died and the Estate is selling the property. When the County is alerted that the homeowner no longer lives in the home, they will recalculate the property tax bill and provide an amount due to the title company. Although it sounds harsh, the County’s position is that this property was improperly receiving a tax benefit and it should be repaid. Paragon Title will work with the Treasury Office to make sure the correct amount is collected.

In Washington, DC, the homestead or senior citizen credit is often recaptured at closing either because the property is no longer the principal residence of the homeowner or they have died. As part of the settlement process, the title company will contact The Office of Tax and Revenue (“OTR”) to make sure all taxes are up to date and no liens attach to the property. This triggers an audit of the account and may result in a revised or “corrected” tax bill which would include a recapture of any tax benefits the homeowner was improperly receiving dating back 3 years.  DC law does require tax payers receiving property tax benefits to report their change of status within 30 days and unfortunately, failure to do so may result in significant penalties.

OTR will remove the improper tax credit from the tax bill and assess a penalty equal to 10% of the delinquent tax. In addition, they will charge interest on that delinquent tax at a rate of 1.5% per month until such time as it is paid off.  Paragon Title will alert the seller prior to closing so that this does not come as a surprise at the settlement table.