End tax time surprises for new homeowners

Under current Montgomery County law, a seller is not obliged to disclose the property taxes that a prospective buyer would pay on a home. Instead, listings for homes on the market — whether in the Multiple Listing Service or in fliers at open houses — display the taxes most recently assessed to the seller.

However, this figure is irrelevant to the new owner’s determination of tax liability going forward, for the following reason: Under provisions of the county’s Homestead Property Tax Credit, the prior owner’s taxable assessment could not grow by more than 10 percent per year. But since this cap comes off when the property changes hands, the new owner’s taxable assessment is determined on the basis of the full market value of the home.

The upshot is that a new homeowner may receive a tax bill that is far higher than what was disclosed prior to purchase. In a real world example, a house on the market in Montgomery County for $565,000 and advertising a tax liability of $2,400 would actually cost the new owner $4,700 beginning one year after the change in ownership. In this example, the near doubling of the tax liability means close to $200 more for the monthly mortgage payment — akin to an additional $30,000 in mortgage debt and potentially beyond what the buyer can afford.

To address this issue, the County Council will soon take up a bill that would require disclosure to the prospective buyer of the tax liability that he or she would face as the new owner of a given property. Sponsored by Councilman Philip M. Andrews (D-Dist. 3) of Gaithersburg, Bill 24-07 would mandate disclosure of what the new homeowner would owe in property taxes in the first full year of residence.

Since tax rates can vary from year to year, it is not possible to provide perfect estimates. However, an estimate based on the home’s taxable assessable value multiplied by the property tax rates in effect at the time will offer a better indicator of what the new owner can expect to pay than a disclosure that lists only what the current owner is paying in property taxes.

Even in an industry where the term ‘‘good faith estimate” can be loosely interpreted, it should be clear that a better estimate of a homeowner’s tax liability is not only possible but also warranted. With a better idea of their actual tax liability, prospective buyers can better determine whether they can meet their monthly payments.

In these times of increasing foreclosures, anything that improves the ability of buyers to make this determination should win the easy support of buyers, sellers, brokers and lenders.

Tony Ieronimo told the County Council last month that, a year after he purchased his Rockville home, his property taxes rose about 40 percent. He said his real estate agent told him that the taxes would not be much higher than those paid by the home’s previous owner.