Maryland Transfer Tax Exemptions 12-108: Family, Spouse, and Trusts

Maryland transfer tax exemptions cover a long list of transactions: transfers between spouses and close family members, distributions from estates, certain trust and business-entity transfers, refinances of a principal residence, and transfers involving government entities and qualifying nonprofits. The state transfer tax is 0.5% of the sale price on most property transfers, but qualifying transactions are fully exempt or taxed at a reduced rate under Title 13 of the Tax-Property Article.¹ Most of the exemptions live in Section 12-108 of the recordation tax statute, and Section 13-207 pulls 26 of those subsections through to the state transfer tax as well.² Claiming the exemption is done at the time of recording, by citing the correct statutory subsection on your document. Miss that citation and the clerk charges the full tax.

Family and Relative Transfers

Family transfers are the most common exemption, and the eligible relationships reach well beyond parent and child. Under Section 12-108(c), when property is transferred subject to a mortgage, the recordation tax does not apply to the assumed debt if the transfer runs between the owner and a spouse, former spouse, child, stepchild, parent, stepparent, in-law, sibling, stepsibling, grandchild, stepgrandchild, grandparent, or stepgrandparent.³ That exemption carries through to the state transfer tax under Section 13-207.²

Domestic partners qualify too, but only for residential property, and the parties must submit evidence of the domestic partnership or its dissolution.³

If you’re transferring to a relative on the statutory list, gather proof of the relationship before closing: birth certificates, marriage licenses, or domestic partnership documentation. Relationships outside the listed categories don’t qualify, and the full tax applies.

Spouses, Former Spouses, and Divorce Transfers

Transfers between spouses or former spouses are entirely exempt from both recordation and transfer tax, whether the property is residential or commercial.³ Section 12-108(d) covers any instrument transferring property between spouses or former spouses, and it doesn’t distinguish voluntary transfers from court-ordered ones. A deed executed under a divorce decree qualifies on the same terms as a deed the parties negotiate themselves.

Former domestic partners get the same treatment, limited to residential property, with proof of the partnership and its dissolution required at recording.³

Transfers From Estates and Trusts

When a personal representative distributes real property from a decedent’s estate to a beneficiary, the transfer is exempt from both recordation and state transfer tax under Section 12-108(dd).² Without this exemption, a beneficiary receiving inherited property would owe 0.5% of the property’s value to the state on top of recordation tax and any county transfer tax.

Certain trust transfers qualify under Section 12-108(ee), which exempts transfers into and out of a trust in specified circumstances.² This matters for revocable living trusts, where property often moves between the grantor and the trust without any real change in beneficial ownership. The transfer must fit within the specific scenarios the statute describes, so read the subsection carefully before assuming your trust transaction qualifies.

Business Entity Transfers and LLC Conversions

Restructurings can trigger large tax bills when real property is involved. Section 12-108 handles the common scenarios.

Transfers Between Related Entities

Property transfers between related business entities are exempt under Section 12-108(p) when beneficial ownership does not change.³ The same principle runs through corporate and partnership conveyances (Section 12-108(q)), mergers (Section 12-108(v)), and consolidations (Section 12-108(w)).² The common thread is that the same people own the same interests before and after. For controlling interest transfers in a real property entity, no recordation tax applies if ownership interests are held by the same persons in the same proportions afterward.⁴

The burden of proving the exemption falls on the real property entity, so documentation matters.⁴ Corporate resolutions, partnership agreements, and organizational charts showing ownership percentages before and after should be prepared in advance.

Converting to an LLC

Section 12-108(y) exempts a deed transferring property from a general partnership, limited partnership, limited liability partnership, joint venture, or sole proprietorship to an LLC when three conditions are met: the LLC members are identical to the partners or owners of the predecessor entity, each member’s profit-and-loss allocation is identical to before, and the deed represents dissolution of the predecessor for purposes of the conversion.⁵

A separate provision under Section 12-108(bb) covers individuals moving a “real estate enterprise” into an LLC. The requirements are stricter: the transfer must be for no consideration other than membership interests, members and profit-and-loss allocations must match, the transfer must be part of discontinuing the enterprise, and all real property used in the enterprise must go to a single LLC.⁵ Both exemptions apply to the state transfer tax as well.²

First-Time Homebuyer Reduced Rate

First-time Maryland homebuyers don’t get a full exemption. They get the rate cut in half. Instead of 0.5%, the state transfer tax drops to 0.25% on improved residential property purchased by a first-time buyer who will use it as a principal residence, and the reduced tax is paid entirely by the seller.¹

Every grantee on the deed must either be a first-time buyer who has never owned residential property in Maryland that served as a principal residence, or a co-maker or guarantor on the purchase money mortgage who will not occupy the property.¹ Each grantee (or an agent) signs a statement under oath confirming first-time buyer status and intent to occupy.

Counties may offer a complete recordation tax exemption for first-time buyers, but that piece isn’t automatic statewide. Check with the county clerk before closing.

Refinancing a Principal Residence

Refinancing your principal residence doesn’t have to trigger a fresh round of recordation tax. Under Section 12-108(g), a mortgage or deed of trust is exempt to the extent it refinances an amount no greater than the unpaid principal on the existing loan at the time of refinancing.⁵ The phrase “to the extent” is doing real work. Refinance $300,000 when your unpaid principal was only $250,000, and the exemption covers the $250,000; you still owe tax on the extra $50,000.

To claim the exemption, the original mortgagor or their agent must include a sworn statement in the mortgage recitals, in the acknowledgment, or as a separate affidavit. The statement confirms the person is the original mortgagor and states the unpaid principal amount being refinanced.⁵ An agent signing must note diligent inquiry and belief in the truth of the facts.

“Original mortgagor” is broader than it sounds. It includes someone who assumed the existing mortgage when buying the property and paid recordation tax on that purchase, someone who received the property through an exempt transfer (a family transfer or LLC conversion, for example), and the trustee of a living trust when the trust’s settlor uses the property as a principal residence.⁵

Government and Nonprofit Transfers

Transfers of property to the United States, the State of Maryland, a state agency, or a local political subdivision are exempt from recordation tax under Section 12-108(a).³ Transfers from those same government entities are exempt from state transfer tax under Section 13-207(c).²

Nonprofits get a narrower exemption. Under Section 13-207(b), a transfer of agricultural land is exempt from state transfer tax if the nonprofit transferee has 501(c)(3) status, is incorporated or registered in Maryland, has agricultural land preservation as its principal purpose, and has been certified by the Department of Assessments and Taxation as meeting those requirements.² The nonprofit must notify the Department at least seven days before the transfer date. This applies specifically to agricultural land preservation, not to every property a nonprofit acquires.

How to Claim the Exemption at Recording

Exemptions are claimed when you record the deed or mortgage with the circuit court clerk, not through a separate application to a state agency. Three pieces have to line up.

Cite the Specific Subsection

The recorded document must cite the exemption code. If the code is missing, the clerk charges full taxes.⁶ A family transfer references Section 12-108(c); a spousal transfer cites Section 12-108(d); a refinance uses Section 12-108(g). Your settlement agent or attorney should know the correct citation, but confirm it before closing.

Complete the Land Instrument Intake Sheet

Every land instrument submitted for recording must include a completed State of Maryland Land Instrument Intake Sheet.⁷ Section 3 of the sheet is where you list claimed exemptions for state recordation tax, state transfer tax, and county transfer tax. Deeds also require Sections 2, 6, and 11.

Bring the Supporting Documents

Different exemptions call for different proof at the counter:

Family transfers: birth certificates, marriage licenses, or other proof of the qualifying relationship.
Domestic partner transfers: evidence of the partnership or its dissolution.
First-time homebuyer rate: a sworn statement from each grantee confirming first-time buyer status and intent to occupy the property as a principal residence.¹
Refinancing: a sworn affidavit from the original mortgagor (or agent) stating the unpaid principal amount being refinanced.⁵
LLC conversions: entity formation documents, operating agreements, and proof that membership interests and profit-and-loss allocations match the predecessor entity exactly.
Business entity transfers: corporate resolutions, partnership agreements, and ownership documentation showing unchanged beneficial ownership.⁴

Incomplete paperwork doesn’t just delay recording. The clerk collects the full tax. Getting it right the first time is far easier than trying to recover taxes on an exempt transaction after the fact.

Penalties for Getting It Wrong

Maryland treats tax evasion on property transfers seriously. Misrepresenting the amount of recordation tax owed by presenting false written evidence of a greater or lesser amount than the law requires is a criminal offense punishable by up to six months in jail and a fine of up to $500. Providing false information on a property tax interrogatory to evade taxes is a misdemeanor carrying up to 18 months of imprisonment and a $5,000 fine, with possible perjury charges layered on top.

Beyond criminal penalties, filing a false return with intent to evade tax can bring a civil penalty of up to 100% of the underpaid amount. A fraudulently claimed exemption can unravel years later during an audit, leaving the property owner liable for back taxes, interest, and penalties all at once. If you’re unsure whether a transaction qualifies, pay the tax and consult a tax professional about a refund claim.

Other Exemptions Worth Knowing

Beyond the major categories, Section 12-108 and Section 13-207 contain exemptions that catch even experienced practitioners off guard:

Land installment contracts are exempt under Section 12-108(r), preventing double taxation when a contract buyer later receives a deed.
Leases of seven years or less don’t trigger recordation or transfer tax under Section 12-108(u).
Options to purchase are exempt under Section 12-108(s); tax applies when the option is exercised and a deed is recorded.
Cooperative housing corporation transfers are exempt under Section 12-108(x).
Transfers from certified community development financial institutions are exempt under Section 12-108(ff).
A principal residence surrendered in bankruptcy is exempt under Section 12-108(gg).

Each subsection carries its own conditions, so read the specific language before assuming it applies.² For complex or high-value transactions, a real estate attorney familiar with Maryland recording practice can catch exemptions you might miss and get the paperwork clean before it reaches the clerk’s window.

1
Maryland General Assembly. Maryland Code Tax-Property 13-203
2
Maryland General Assembly. Maryland Code Tax-Property 13-207
3
Maryland General Assembly. Maryland Code Tax-Property 12-108 – Exemptions From Tax
4
Maryland General Assembly. Maryland Code Tax-Property 12-117
5
Maryland General Assembly. Maryland Code Tax-Property 12-108
6
Maryland Courts. Recording Fees and Taxes
7
Maryland Courts. Instructions for the State of Maryland Land Instrument Intake Sheet