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.
For the latest DC credit program, please view information here on DC's Newly Enacted First-Time Homebuyers Recordation Tax Reduction program that went into effect October 1, 2017.
Purchase price and income thresholds to qualify for the popular DC Tax Abatement Program have increased, hopefully making it easier for more homebuyers to become homeowners.
The District of Columbia Office of Tax and Revenue upped the purchase price threshold to $439,160 from $408,000.
At the same time, the income threshold for a single buyer increased to $58,980 from $57,540 while the income threshold for a two-person household increased to $67,380 from $65,760.
In "Economic Development Zones," the income limits are higher. For a single buyer, it's $67,265 and for a couple it's $76,890.
For more on income limitations and the DC Tax Abatement Program, please visit our page on the DC Tax Abatement Program.
Real estate website Trulia reports the median sales price for homes in DC was $539,000 over the past three months, an increase of 5 percent over the previous year.
The DC Tax Abatement Program provides an exemption from the DC 1.1% Recordation Tax and an allowable credit from your seller(s) of 1.1% equal to the DC Transfer Tax. Additionally, the program provides a five-year real estate tax abatement that begins October 1 following your date of closing.
We’re venturing over to the Northeast quadrant to check out a super cute condo that just came on the market in the hot Eckington neighborhood. It’s newly renovated with a private patio and comes with parking. It’s got 2 bedrooms that each have an en-suite bathroom. List price is $429,000.
The unit features hardwood floors as well as granite countertops and stainless steel appliances. Just eight minutes from the Rhode Island Metro stop, this condo is in close proximity to a Rhode Island Row, a shopping area that has already seen a huge transformation. Plans for further development are on the horizon. In the opposite direction is the up-and-coming Bloomingdale neighborhood, which has seen a number of local restaurants open in recent years.
Assuming a homebuyer puts down 20 percent on a conventional loan, her cash to close number will be approximately $95,050.86. Monthly payments will then be around $1,988.72, including the HOA fee. For a complete picture of the cash to close, including the seller’s side of a transaction like this, try the Web version of Close It™ or download the free Close It™ iOS app.
Legislation that would offer tax relief for District residents buying DC real estate is currently under committee review and awaiting scheduling for a mark-up, a spokeswoman for the Council's Committee on Finance and Revenue said.
Known as the First-time Homebuyer Tax Benefit Amendment Act of 2015 (B21-0417), the bill would 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. It would go into effect Sept. 30, 2016.
During mark-up, which is a vote in the Committee to send the bill before the whole Council, the Committee will have an opportunity to amend the bill (or not) and will also have a chance to review a financial impact statement to analyze costs and revenues of the proposed legislation.
If the bill passes mark-up, it will go to Mayor Muriel Bowser for a signature before going to Congress for review and passive approval. If it fails mark-up, the bill will get kicked to the Committee of the Whole and added to the agenda for the next legislative meeting.
Impact on low- to moderate-income residents a concern
The Council held a public hearing about the bill on February 10 of this year, which is when Settlement Observer picked up on the story. Then on February 24 a representative from the DC Fiscal Policy Institute testified before the Committee about concerns regarding a lack of income restrictions and the impact the tax cut would have on the city’s Housing Production Trust Fund.
“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.
The bill was introduced last October by councilmembers Jack Evans (D-Ward 2), David Grosso (I-At Large) and Anita Bonds (D-At Large).
Grosso acknowledged concerns regarding the economic impact of lowering the transfer tax rate across the board and, in particular, how such a deduction would affect the Trust Fund.
“I am committed to working with my colleagues to ensure that the [Trust Fund] receives annual commitments so that it is not dependent on yearly fluctuations in recordation tax revenues,” Grosso said in a statement.
Mayor Bowser’s budget proposal last year included $100 million for the Trust Fund in fiscal year 2016, according to the website of the Coalition for Nonprofit Housing & Economic Development. The Trust Fund is administered by the DC Department of Housing and Community Development with support from the Coalition.
The Trust Fund “enables non-profit housing providers, mission-driven for-profit developers and renters wishing to exercise their Tenant Opportunity to Purchase rights to improve and develop affordable housing in all eight wards,” according to the Coalition’s website.
Since its inception in 2002, The Trust Fund has produced or preserved more than 8,000 affordable homes with upward of 2,000 more in the pipeline, according to the Coalition’s website. In addition the Trust Fund has created an estimated 10,000 short-term and permanent jobs and has helped more than 18,000 DC residents.
The District's homebuying taxes significantly higher than Maryland or Virginia, about 50% higher on average
Current DC transfer and recordation taxes are on average 50% higher than neighboring Maryland and Virginia, Grosso said in a statement, which was the impetus for introducing a bill that would lower the tax burden for homebuyers purchasing for the first time in the District.
Transfer tax rates for District properties vary depending on the purchase price, from 1.1% for purchases $399,999 and below to 1.45% for purchases of $400,000 or more. The tax payment is traditionally paid by both the buyer and seller.
The DC tax abatement program offers relief for some, but homebuyers must satisfy income, purchase price and other restrictions and provide documentation to qualify.
Tax abatement waives the recordation tax obligation for low- to moderate-income first-time homebuyers while also crediting the seller’s portion of the tax to the homebuyer, resulting in a 2.2% swing in favor of the homebuyer. In addition, a qualifying homebuyer is exempt from paying property taxes for the first five years of ownership, but again some restrictions apply.
“If policymakers are concerned that the current deed tax assistance programs are inadequate, the District should look to modify existing programs while keeping a focus on low- and moderate-income families, rather than adopt another tax break that has no income targeting,” Zippel, the housing policy associate, said in her testimony.
We will continue to monitor the story, and readers can also follow along on the Council's website.