An Overview of Taxes in Montgomery County, MD

Residents and property owners in Montgomery County, Maryland, are subject to local taxes that supplement their state and federal obligations. These taxes are established by the County Council and fund public services, including schools, infrastructure, and public safety. The county’s tax system has several distinct components that apply to individuals based on property ownership, income, and specific transactions.

Montgomery County Property Tax

Property tax in Montgomery County is an annual tax levied on real property, which includes land and any improvements upon it. The tax is calculated by multiplying the property’s assessed value by the applicable tax rate. This assessed value is determined by the Maryland State Department of Assessments and Taxation (SDAT), which appraises properties based on their fair market value.

The assessment process operates on a triennial cycle, meaning each property is physically inspected and reassessed by the state once every three years. In the years between physical inspections, assessments may be adjusted based on market trends in the surrounding area. Property owners receive a notice of assessment from SDAT, which outlines the new value that will be used for tax purposes. Any significant increase in value is phased in over the three-year period to prevent sudden, sharp spikes in tax liability.

The tax rate applied to the assessed value is a composite of several different rates. For fiscal year 2025, the county-wide property tax rate is $0.6700 per $100 of assessed value. For properties located within the boundaries of an incorporated municipality, such as Rockville or Gaithersburg, an additional municipal tax rate is applied to fund that city’s specific services. Special taxing district rates for services like the Maryland-National Capital Park and Planning Commission (M-NCPPC) and fire districts are also included.

For example, if a home has a phased-in assessed value of $500,000, the county-wide portion of the tax bill would be $3,350. The final bill would be higher, as it would also include state, and where applicable, municipal and special district taxes.

Montgomery County Income Tax

Montgomery County levies a local income tax on its residents, which is calculated based on their Maryland taxable income. Rather than a single flat rate, the county uses a progressive tax system with several income brackets. This means that higher levels of income are taxed at higher rates. For example, the initial tier of taxable income is taxed at the lowest rate, while income above certain thresholds falls into brackets with progressively higher rates.

This local tax is integrated directly into the state’s income tax system. When a resident files their annual Maryland state income tax return, Form 502, the county income tax is calculated on that same form.

Real Estate Transfer and Recordation Taxes

When real estate is sold in Montgomery County, the transaction is subject to both transfer and recordation taxes. These are one-time taxes paid at the time of closing and are distinct from the annual property tax. The recordation tax is levied for recording the deed and other legal instruments. Montgomery County uses a tiered system for this tax, where the rate increases based on the property’s sale price.

The transfer tax is imposed on the transfer of the property title from the seller to the buyer. This tax has two components: a state transfer tax of 0.5% of the sale price and a Montgomery County transfer tax of 1% of the sale price. The responsibility for paying these taxes is a negotiable item in the sales contract, but it is common for the cost to be split between the buyer and the seller.

Certain exemptions are available, which can reduce or eliminate the burden of these taxes. An exemption is often available for first-time homebuyers who meet specific criteria set by the state. This exemption can significantly lower the closing costs associated with purchasing a home.

Available Property Tax Relief Programs

Montgomery County offers programs designed to lessen the property tax burden for eligible homeowners. The Homestead Tax Credit is a program that limits the annual increase in the taxable assessment for a homeowner’s principal residence. This credit is not based on the owner’s income. The credit caps the increase in taxable assessment at 10% per year, preventing property tax bills from rising too steeply due to rapid market value appreciation. An application must be filed with the Maryland State Department of Assessments and Taxation (SDAT) to receive this credit.

Another form of relief is the Homeowners’ Property Tax Credit, which is an income-based program available to homeowners whose gross household income falls below a certain threshold. The amount of the credit is determined by a formula that compares the property tax bill to the household’s income. To receive the county’s supplemental credit, homeowners must first apply for and be approved for the state credit. The county also offers a Senior Tax Credit for eligible residents, which is equal to 50% of the combined state and county homeowners’ credits. Homeowners must apply for these credits annually through the SDAT.

How to Pay Your County Taxes

The methods for paying county taxes vary depending on the type of tax. For property taxes, homeowners receive a bill in July, and payments can be made in two semi-annual installments. The first installment is due by September 30, and the second is due by December 31. Montgomery County provides several payment options, including online payments through its official portal, by mail, or in-person at designated county offices.

Income tax payments are primarily handled through payroll withholding for most residents. Employers deduct the tax from an employee’s wages and remit it to the state. Those who are required to make estimated tax payments do so on a quarterly basis, using the state’s forms and payment systems. The final reconciliation of county income tax occurs when the Maryland state income tax return is filed by the April deadline.

Real estate transfer and recordation taxes are paid as part of the closing process when a property is bought or sold. The title company or settlement attorney overseeing the transaction is responsible for collecting the necessary funds from the buyer and/or seller. These funds are then paid directly to the county and state to ensure the deed is properly recorded and the title is officially transferred.