Q: Finding exemption codes for deed transfer in Maryland from mother to son

A: Have you considered the effect of losing the income tax benefit of stepped up basis before worrying about the exemption code for the recordation tax? You really need to consult a lawyer or, at least, a CPA, to determine whether you are exempt from all taxes. You might be, but your focus on a recordation tax in doing an inter vivos transfer on an 85 year old owner is unwise.

A: Deeds in Maryland usually trigger state transfer, recordation and county transfer taxes. The Maryland Annotated Code, Tax Property article, section 12-108 lists exemptions from state transfer tax. Exemptions from recordation tax are listed in 13-207. County transfer tax exemptions vary county-to-county (for example in some Maryland counties a parent/child transfer will be exempt from state but still have county transfer tax) but can be located in each county's local code.

That said a perhaps more significant threshold question is understanding your mom's reasons for transferring her home now. Parents who transfer property late in life might learn to their surprise that they triggered an obligation to file a gift tax return with the IRS (assuming the property is worth more than $19,000). Children can be shocked to discover that a lifetime deed unwittingly set things up for significant capital gains taxes that would not have applied if the property was transferred another way. This is because lifetime gifts do not get a "stepped up" basis. An attorney can help discuss other options such as a Trust or Life Estate Deed that could avoid probate without increasing potential capital gains taxes.

Your post notes that you are transferring your mom's property (not your mom). Generally, the current owner is the only person that can initiate a gift deed to others. While in very limited situations with express authority an agent might be able to create a planning deed or transfer to trust, the normal rule is that an agent under a power of attorney cannot ordinarily gift themselves or other family members property.

All that said, you and/or your mom are strongly encouraged to consult with an attorney before making a lifetime transfer that could result in unnecessary taxes down the road. While not a substitute for personal legal advice I hope this general information helps.

A: I agree with the other two answers. I am adding this additional response so that you can undertand some of the tax consequences and reconsider what you are doing so as to avoid those extra taxes.

When a person sells their property during their lifetime, they may realize a capital gain, meaning a profit, which is the difference between the value of the property when they acquired it (either their purchase price or the FMV if they inherited it under an estate, which is also known as their "tax basis" in the property) and the amount of the sale price when they sell it. Capital gains are subject to a federal capital gains tax (15% -20% depending on the income of the seller). Maryland tacks on an additional 4-5% for most income brackets.

If the owner does not sell the property during their lifetime, but transfers it as a gift it to someone else, or just adds someone else's name to the deed along with their's, then the new person added or acquiring ownership receives the same tax basis as the original owner. That means, if the property is later sold, there will be a capital gains tax based on the original owner's tax basis in the property, even if the original owner has died before the sale.

For example, if your mother paid $100,000 for her house many years ago, and then transfers the property outright or adds you and your son as joint owners with right of survivorship to the deed before she dies, then whenever the house is sold in the future, you or your son will pay capital gains taxes on any amounts realized above $100,000. So if the house later sells for $600,000, there's a capital gains tax of $90,000 or more depending on your and your son's income. (Caveat: if the home is a seller's principal residence for 2 of the prior 3 years before the sale, then the first $250,000 above the tax basis is excluded from federal capital gains tax, or $500,000 if the sellers on the deed are married--but that exemption does not apply to the Maryland capital gains tax).

By contrast, if an owner dies and leaves their real property to their named heirs in their will, then those heirs get a "stepped up" tax basis in the property, equal to the full fair market value of the property as of the date of death of the owner. This effectively wipes out any capital gains tax on the increase in vallue from the date the original ower acquired the property through the date of her death. This is a huge financial benefit to the heirs inheriting the property. Any future taxable gain will now only apply to sale proceeds exceeding that stepped up tax basis.

There are methods in addition to a will to transfer real property to heirs so as to eliminate capital gains taxes, which a lawyer can advise you on. Two options include your mother transferring the property to her revocable living trust, which upon her death, distributes the property to you and your son as joint owners. Another method is for her to execute a "life estate" deed, which transfers ownership to you and your son, but retains a life estate in the property in your mother's name. Upon her death, the life estate goes away. In both of these scenarios, you and your son would get the stepped up tax basis equal to the FMV of the property at the time of your mother's death.

Other issues may require further discussion, such as your mother's long term nursing home care considerations and her expected need for Medicaid to pay for such care. If that is a consideration, then transfer of assets for less than fair consideration within 5 years of applying for Medicaid will be counted as if she had not transferred all or part of the value of the property for purposes of calculating whether she meets the asset/income guidelines for coverage. (Note: Medicare will only cover about the first 90 days of longterm nursing home care, following which a person must pay down all their "countable" assets before Medicaid picks up the costs).