County Backs Down On Imposing Deed Recording Taxes On Debt Forgiveness In Short Sale Transactions After State AG Weighs In

In Anne Arundel County, Maryland, The Baltimore Sun reports:

• Anne Arundel County said it will no longer tax short sales on more than a home's purchase price, reacting to an opinion from the Maryland attorney general's office Wednesday that the practice isn't supported by state law. Richard Drain, the county comptroller, said Anne Arundel will collect recordation tax on the sales price, rather than the sales price plus any debt forgiven by the lender. Drain said five homes were taxed at the higher amount, and the money - less than $4,000 total - would be refunded.

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• The American Land Title Association wasn't aware of any other community in the country taxing short sales on forgiven debt. But the attorney general's opinion noted that Washington state had begun doing so and then reversed course a year ago. Closer to home, Montgomery County said this month that it had intended to start but decided to hold off to seek legal guidance.(1)

For the story, see Anne Arundel backs down on taxing short sales (State attorney general's office opinion leads to reversal).

(1) According to the story, Bonnie A. Kirkland, the assistant attorney general who wrote the newly issued opinion, said that debt forgiveness is a separate transaction from the sale. Recordation tax is charged on the balance owed on a mortgage when lenders accept the deed to a property in lieu of foreclosing. But in a short sale, the buyer is a third party who has nothing to do with the debt, Kirkland said.