DC Tax Abatement
The DC Tax Abatement program is designed by the District of Columbia to help lower-income homeowners. Below are some often asked questions from agents and potential homebuyers.
What does the DC Tax Abatement program entitle me to do?
Assuming you qualify, you are exempt from paying transfer and recordation taxes. This means not only are you exempt from the recordation tax; but customarily, the seller’s transfer tax is credited to you at settlement. You will also be exempt from paying real property taxes for 5 years beginning the next full tax year after filing.
What are the qualifying factors to get DC Tax Abatement?
The qualifying factors for DC Tax Abatement are as follows:
- The purchase price of the property must be $456,000.00 or less;
- The income threshold – max gross income – must be
PERSONS IN HOUSEHOLDS/INCOME LIMITS
- The property must be a principal residence; and
- The purchaser must be domiciled in the District of Columbia.
What does “domiciled” in the District of Columbia mean?
To be domiciled in the District of Columbia you must (a) get a DC government issued ID such as a DC Driver’s license; (b) register to vote in DC; and (c) file DC Personal Income taxes. Please note: the purchaser can obtain/do the above mentioned after the purchase.
What documents are required to get the Tax Abatement?
The documents usually required are:
- Last 2 years income taxes;
- Last 2 W-2s;
- Last 2 paystubs.
If there are any extenuating circumstances i.e gaps in your employment, self-employment, etc., the District of Columbia may require additional documentation from you before approving the abatement application.
Who files the documents so I can get tax abatement?
The settlement agent files the required documents along with the settlement statement and sales contract when recording the deed after closing.
I am in the military, does my housing allowance count as income despite it being non-taxable income? Do I need to change my State of Legal Residence?
Yes. The DC Recorder of Deeds looks at all sources of income, not just taxable income.
Yes, you need to be domiciled in the District of Columbia which includes filing DC income taxes. You can fill out and file a form DD2058 to change your residency to the District of Columbia.
How do I know that my tax abatement application was approved?
The settlement company handling your closing will know immediately because your deed will go on record without transfer and recordation taxes. You will also receive a letter from the District of Columbia confirming that you qualified for the tax abatement and giving the years you will be exempt from property tax.
If I qualify for tax abatement, why is my lender still collecting taxes in escrow?
The real property tax exemption does not start until the next full tax year. In other words, if you settle in April 2018 and the tax period for 2018 is October 1, 2017, through September 30, 2018, you will not be given the exemption until the 2019 tax period. You will be required to pay real property taxes for April through September 2018. Your real property tax exemption will start 2019 and finish 2024.
What happens if my situation changes – am I required to report it to the District?
The answer is Yes. If your household income increases or you decide to rent the property rather than using it as your principal residence, you must report it to the District. Until recently, nothing was specifically stated in the application. The updated application now specifically states “If the household ceases to qualify for the Lower Income Homeownership Exemption, it is the responsibility of the owner to provide written notification to OTR’s Special Programs Unit within 30 days of the change in eligibility. Email email@example.com. This means individuals must keep up with the annual thresholds for the tax abatement program and self-report any changes. This also means individuals must notify the same unit if they are no longer living in the property as their principal residence.
If your questions about tax abatement have not been answered here, please feel free to contact me 202.362.1500 ext 1514.