5 Things to Know About DC Tax Abatement

As a homebuyer, it is important to be aware of programs you can benefit from in order to reduce the overall cost of the process of buying a place to live.

The DC Tax Abatement program is one such opportunity that a homebuyer can and should take advantage of.

However, there are qualifications that a homebuyer must meet in order to become eligible for this program, and it is important to stay informed on what these are.

Recordation and Real Property Taxes

If it turns out that you are a homebuyer that qualifies for the DC Tax Abatement program, it is important to understand what exactly you are exempt from.

First, you are exempt from a recordation tax at settlement. This means that while someone else who does not qualify for DC Tax Abatement would have to pay a tax to transfer the title of real property from one person to another, you wouldn’t have to. And 1.1% of the purchase price is credited to you from the seller.

Secondly, you don’t have to pay a real property tax for the first five years you live in your home.

This period of five years starts once the next full tax year has begun after filing.

,

Financial qualifications

Now that you know what the DC Tax Abatement program exempts you from, you need to know if you are eligible for it.

As for qualifications you must meet financially, there are income limits that you cannot breach and the property you are trying to purchase must cost a certain amount or less.

These amounts can change and fluctuate, however, as of 2018, if you want to be eligible for this program the purchasing price of your property must be $456,000 or less.

As for income limits, these can also change, but currently if only one person is living on the property, then they must make $63,060 or less if they want to qualify for DC Tax Abatement.

Other qualifications to meet

Next, in order to determine your eligibility for DC Tax Abatement, you must look at a couple more factors that are not money related.

First, the property that you are purchasing must be your principal residence. Your principal residence can be determined by where you pay your taxes, where you vote, what address is on you driver’s license, etc.

In addition to the property being your principal residence, you must also be domiciled in DC. This means that you must have a DC government issued ID, you are registered to vote in DC, and you file DC Personal Income taxes.

If all of these qualifications have been met, then you can begin to gather the documentation that your settlement agent will file.

Reporting changes in situation

One thing that is important to note is what to do if any of the information that granted you eligibility has changed after you qualified for DC Tax Abatement.

If your income has increased so that it exceeds the thresholds for the tax abatement program or if the property you purchased is no longer your principal property, then you must self-report these changes within 30 days after they happen.

This means that as a homeowner with DC Tax Abatement, it is your responsibility to stay up to date with the latest annual thresholds to qualify for DC Tax Abatement.

Applying for DC Tax Abatement after settlement

With so much going on in the homebuying process, it could be easy to let certain things, like DC Tax Abatement, slip.

However, if you did not apply for DC Tax Abatement before settlement, all is not lost. It is still possible to apply for DC Tax Abatement for up to three years after settlement.

Of course, all of the previously mentioned qualifications must still be met for you to be eligible.

The numbers in this article may be out of date. Visit our guide how to qualify for DC Tax Abatement for the most current information.

DC First-Time Homebuyer Reduction Applies to Revocable Trusts

As of October 1, 2017, the District of Columbia passed a reduced recordation tax benefit to first-time homebuyers that reduces the Recordation Tax for eligible DC First Time Homebuyers.

In general, the recordation tax will be reduced to 0.725% if the homebuyer taking title has never owned a principal residence in the District and the purchase price does not exceed $625,000. For more details on the general eligibility requirements, click here.

What was unclear from the passage of the initial legislation was whether a purchaser taking title in the name of a trust was eligible for the discount.

Since then, the District issued a Notice of Final Rulemaking clarifying that a revocable trust is eligible for the discount.

This allows for consistency with the Homestead Deduction, since it is a condition of the Reduced Recordation Tax that the property must qualify for the homestead deduction, and the homestead deduction does allow for revocable trusts to apply.

What's the benefit of the DC First Time Homebuyer Recordation Tax Deduction

What's the benefit of the DC First Time Homebuyer Recordation Tax  Deduction

What’s the Benefit?

DC First-Time Recordation Tax is reduced to 0.725% from customary 1.1% or 1.4%.

Qualifications*

  • Homebuyer* has never owned a principal residence in the District of Columbia.
  • Homebuyer must qualify for the DC Homestead Deduction.
  • Purchase price cannot exceed $625,000.
  • Total Household Income cannot exceed defined thresholds listed below:
    • Persons in Households / Income Limits
      • 1 / $139,140
      • 2 / $158,940
      • 3 / $178,740
      • 4 / $198,540
      • 5 / $214,560
      • 6 / $230,400
      • 7 / $246,240
      • 8 / $262,080

What's the Benefit of the Maryland First-time Homebuyer Tax Credit?

What's the Benefit of the Maryland First-time Homebuyer Tax Credit?

What’s the Benefit?

The Maryland First-Time Homebuyer Credit exempts the buyer from paying the State Transfer Tax.

Qualifications*

  • All homebuyers must be individuals (cannot be a trust or other entity) who have never owned in the state of Maryland residential real property that has been the individual(s) principal residence; and
  • The residence will be occupied as the homebuyer’s principal residence.

* There is an exemption that will allow a homebuyer to qualify if a co-buyer is on title solely for the loan qualification and will not occupy the property as a principal residence.

Catching up with the First-time Homebuyer Tax Benefit Amendment Act of 2015

Catching up with the First-time Homebuyer Tax Benefit Amendment Act of 2015

First-time buyers and real estate pros in the District of Columbia awaiting word on the status of the First-time Homebuyer Tax Benefit Amendment Act of 2015 can expect to hear a response from the office of Mayor Muriel Bowser this week.

A final version of the bill that would amend the District of Columbia Deed Recordation Tax Act was transmitted to the Mayor’s office Feb. 2, and a response is due by Feb. 16.

The revised transfer tax rule would retroactively go into effect Oct. 1, 2016, according to the final bill, provided the measure is approved by the Mayor and passes the 30-day congressional review period.

As we previously reported, the bill will create a new transfer tax rate of 0.725% for homebuyers who have never purchased a house, condo or share in a cooperative unit in the District of Columbia. The current transfer tax rate for D.C. homebuyers is 1.1 percent on purchases of $399,999 or less and 1.45 percent on purchases of $400,000 or more.

The median home price in the region soared to a record high of $446,000 last summer, the Washington Post reported.

When we checked in last April with the bill known as B21-0417, or the First-time Homebuyer Tax Benefit Act of 2015, it was under committee review and awaiting scheduling for a mark-up. That happened last November.

After a first reading of the of the bill was delivered Dec. 3, 2016, Councilwoman Elissa Silverman (D-At Large) was the only one to vote against the measure, later telling Washington City Paper that because the bill did not specify income limits, the tax break would benefit a homebuyer in Ward 3 five times more than a homebuyer in Ward 8, rendering the benefit "regressive."

Councilwoman Silverman was not the only individual to express this sentiment. The lack of an income restriction has been a concern of the bill’s critics all along.

During testimonies that took place about a year ago, a representative from the D.C. Fiscal Policy Institute said the city would negatively impact its Housing Production Trust Fund, which has produced or preserved more than 8,000 affordable homes since its inception in 2002.

“Rather than provide a new tax benefit for all first-time homebuyers, DCFPI recommends that policymakers review the city’s current deed tax assistance to low- and moderate-income homebuyers and make adjustments if they appear warranted,” said DCFPI Housing Policy Associate Claire Zippel in her testimony last February.

The city regularly alters the income and purchase price restrictions on its popular D.C. Tax Abatement program, and the D.C. Office of Tax and Revenue most recently increased the income and purchase price limitations at the end of last year.

However, the income-restriction concern in regards to B21-0417 was addressed Dec. 13, 2016 when Councilwoman Anita Bonds (D-At Large) introduced an amendment that added two eligibility requirements, an income limit of 180 percent of the area median income as well as proof of District residency.

The median income in D.C. in 2015 was $109,200 annually, so buyers earning up to $196,564 could potentially qualify for transfer tax relief.

The amendment also created a lifespan of four years after the program’s implementation date, at which point the Mayor must submit a report to City Council that reviews the benefits or impact of the tax relief program on homeownership rates.

With the Bonds amendment in place, Council voted unanimously in favor of the First-time Homebuyer Tax Benefit Amendment Act of 2015 on Dec. 20, 2016.

  • Ways to save at closing

    Title charges are the largest chunk of closing costs and can vary by hundreds of dollars.

    Learn more

  • What are closing costs?

    The real estate closing process involves loan steps, legal steps and title steps.

    Learn more

  • What's title insurance?

    Insure your legal ownership just like you'd insure the building, but for lots cheaper.

    Learn more

Connect with us


Our blog contains general information only, not intended to be relied upon as, nor a substitute for, specific professional advice. Rate tables and figures that appear on our blog are deemed reliable but not guaranteed. For current rates & policies, refer to our Quick Quote and Consumer Guide. We accept no responsibility for loss occasioned to any purpose acting on or refraining from action as a result of any material on our blog.