Note: For those unfamiliar with the DC Tax Abatement program or in need of a refresher, Federal Title & Escrow covers the basics of the program in the following blog post - How to Qualify for the DC Tax Abatement Program. As always, you can find the most up-to-date Tax Abatement Application on the Office of Tax and Revenue’s website.
I recently had a question from one of our agents regarding the income threshold for the DC Tax Abatement Program. The question was prompted because the buyer’s salary was below the income limit; however, the buyer planned to liquidate assets (specifically stocks) in order to make the down payment. The issue boiled down to this - how would the liquidation of assets affect qualifying income for the DC Tax Abatement Program?
The answer is relatively straightforward. Part III of the Tax Abatement application requires that an applicant disclose his or her household gross income. This includes but is not limited to the following:
(a) wages and salary,
(b) dividends & interest,
(c) business income,
(d) pensions & annuities,
(e) capital gains & profits,
(g) social security,
(h) unemployment insurance and/or workman’s compensation,
(i) support money and/or public assistance grants,
(j) sick pay excluded from home,
(k) military compensation,
(l) fellowship awards and grants,
(m) life insurance proceeds,
(n) veteran’s pension and disability benefits,
(o) GI bill benefits,
(p) loss time insurance,
(q) income subject to Unincorporated Business Tax,
(r) cash distributions, and
(s) other [the District’s catchall].
In the aforementioned situation, the liquidation of assets – specifically the capital gains/profits from those assets – would have counted towards the buyer’s gross income and resulted in the buyer’s disqualification from the DC Tax Abatement program.
Interestingly, the timing of the liquidation of assets matters less than you may suspect. The tax abatement program instills a duty to report when a homebuyer ceases to qualify for the program. If the homebuyer liquidates assets after the initial application – thereby increasing his or her household gross income over the threshold, the homeowner must alert DC as to the disqualification. The Office of Tax and Revenue’s Special Programs Unit audits every application every year, and a homeowner who improperly avails themselves of the program potentially faces removal from the tax abatement program, recoupment of real property taxes with penalties and interest, and recoupment of the previously exempted transfer and recordation taxes.
Fortunately, our buyer was able secure additional financing and avoid potential disqualification since the issue addressed in a timely manner.
If you have any questions regarding the calculation of gross income for the DC Tax Abatement application, contact us! Federal Title & Escrow is here to help you throughout the settlement process – including any potential questions with the DC Tax Abatement application.
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Federal Title & Escrow Company Partners with eClosing Provider Pavaso to serve Washington, D.C., Maryland, and Northern Virginia Settlements
Washington, D.C., December 22, 2017 – Federal Title and Escrow Company has partnered with eClosing service provider Pavaso to bring cutting-edge technology to real estate settlements in the Washington D.C., Maryland, and Virginia area. Pavaso created the industry’s only end-to-end digital closing platform to improve communication, efficiency, and process management in the real estate settlement arena and is continuing to focus on the improvement of the consumer experience.
Federal Title and Escrow Company’s main initiative is to be at the forefront of innovation to make the closing process simpler and smarter for the consumer. We are constantly striving to utilize technology to streamline the closing process without sacrificing the personal relationship we build with our clients. The real estate settlement market has been rapidly moving toward online closings. Pavaso provides us with a secure platform to link all parties in the transaction so that we may conduct both hybrid and fully online closings.
Pavaso’s technology empowers lenders and title companies to deliver the speed and ease of a modern transaction without neglecting the human touch. As today’s consumers increasingly demand the simplicity and convenience of an online transaction, Pavaso is bridging the gap between the archaic paper mortgage process and the digital world. Its technology is both flexible and “future-proof,” enabling users to conduct digital transactions ranging from hybrid closings to complete eNotes.
“The D.C. metropolitan area consists of millions of hardworking individuals that may not have the time for the traditional settlement,” said Todd Ewing, CEO, Federal Title and Escrow Company. “Pavaso allows the consumer to review documents, sign, and securely complete closing from their own preferred venue.”
“We pledge to provide the best experience for the consumer and seek to refine and continually improve the end to end borrower experience,” added Mark McElroy, CEO, Pavaso. “Each and every day closings are happening across the country with consumers who don't fully understand the process and there is less room today for a cumbersome, inconvenient experience. Consumers have choices now and want a better experience. By moving to a digital closing process, Federal Title is providing that experience, allowing borrowers to benefit from a significantly more informed, transparent and convenient process.”
About Federal Title & Escrow Company
Established in 1996, Federal Title & Escrow Company, the largest independently owned and operated title company in Washington, D.C., is known for its top-notch customer service and streamlined closing process. Federal Title has D.C. office locations in Friendship Heights and in Logan Circle. For more information, please visit www.federaltitle.com or contact Nikki Lyon directly for media inquiries.
Texas-based Pavaso is transforming the mortgage process with radically innovative digital mortgage closing technology facilitating fast, consistent, accurate and compliant closings every time. Pavaso offers a single, collaborative, secure portal promoting transparency, efficiency, consumer education and communication in a seamless format delivering value to every stakeholder involved in the transaction. For more information on how you can streamline your process and digitally transform your organization, call us at 866.288.7051 or visit www.pavaso.com.
Understanding the property tax assessment process can be a bit tricky. Specifically, it can be difficult to understand the difference between an assessed value and a taxable assessed value. Part of the confusion has to do with the Assessment Cap Credit. Here is an example of a recent question on this topic:
Question: On my DC Tax bill, the assessed value is listed as $388,500, but my taxable assessment was only $291,200, a difference of $97,300. What accounts for this difference?
Answer: The bulk of the difference has to do with the Homestead Deduction, which reduces the real property taxable assessment by $72,450. However, there is a second benefit to the Homestead Deduction that receives a lot less attention, the Assessment Cap Credit. This credit provides that the taxable assessment cannot increase more than 10% per year. The credit is not applied against the assessed value, but it is used to reduce the taxable assessed value. In the above question, the additional credit that reduces the taxable assessment by a further $24,850 is the assessed cap credit. Further, based on the above numbers, next year’s taxable assessment cannot exceed $320,320 ($291,200 plus 10%), regardless of the assessed value (assuming of course that the property is still registered as a homestead).
The District of Columbia Office of Tax and Revenue has great information on their website that explains in detail the real property process and the credits available.
We close out 2017 with our house of the week located in Cleveland Park.This large home welcomes you with a charming front porch that opens to over 2,000 square feet of space to include four bedrooms and three bathrooms. The home is fully equipped with stainless steel appliances and granite countertops in the kitchen, plus a full-sized washer and dryer. Even though the pad is virtually walking distance to shops and dining in the area, it also has a garage and driveway for commuters or guests to park comfortably. This is super important as you are likely to have family or friends over this summer to barbeque in your fenced-in backyard. The property is listed at $1,200,000 and is looking for new owners.
Assuming a homebuyer puts down 20 percent, their cash-to-close would be $274,427 and monthly mortgage payments would be approximately $3,575. You’ll also receive a credit of $750 when you choose to use Federal Title & Escrow Company for settlement services when ordered online. For a complete picture of what your cash-to-close figures would be, including seller’s net proceeds from the sale and such, please view the Close It! Web version or download the free Close It! iOS app.