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.

 

5 Things to Know About DC Homestead Deduction

5 Things to Know About DC Homestead Deduction

In the process of purchasing a property, it is hard to keep track of all of the elements involved.

Such elements can even include things that could be beneficial to the homebuyer. Therefore, we here at Federal Title do our best to keep homebuyers informed about their options in the homebuying process, like the DC Homestead Deduction, so that they can make the best decisions.

What is there to gain?

The DC Homestead Deduction provides valuable savings when it comes to what amount of the assessed value for your property is taxable.

Currently, the property tax rate is $0.85 per $100 in DC which means that .0085 of your property’s assessed value must be paid as a tax. However, if you are eligible for the DC Homestead Deduction, your property’s assessed value is reduced by $73,350.

Therefore, because the amount the government can tax is less, the money you must pay for the real property tax is less. However, the value by which your property is reduced changes annually and so it is important to stay up to date on that number.

Qualifications

In order to be eligible for the DC Homestead Deduction, there are four qualifications a homebuyer must meet.

First, a Homestead Deduction application must be filled out and on file with the Office of Tax and Revenue (link for DC Homestead Deduction application: https://otr.cfo.dc.gov/node/1299251).

In addition, the property, which cannot include more than five dwelling units, must be the principal residence of the owner/applicant.

Principal residency can be determined by where you pay your taxes, where you vote, what address is on you driver’s license, etc.

Finally, you must be domiciled in DC which means that you have a DC government issued ID, you are registered to vote in DC, and you file DC Personal Income taxes.

If these conditions are met, then you are eligible for the DC Homestead Deduction.

When do you begin receiving the benefits of the DC Homestead Deduction?

When the DC Homestead Deduction goes into effect depends on when the application for it was filed. If an approved application was filed between October 1 and March 31, then the DC Homestead Deduction will go into effect for that entire tax year and every tax year after that.

If an approved application was filed between April 1 and September 30, then the property will receive half of the deduction amount and then the following years after that it will receive the full deduction.

When should you cancel your DC Homestead Deduction?

There are several instances in which you must cancel your DC Homestead Deduction.

It is important that you can recognize the situations so that you don’t fall victim to the District of Columbia’s Homestead Deduction Audit Program.

Essentially, if the property is no longer your principal residence then you must fill out a Cancellation of Homestead Benefit form.

This means that if you moved off the property and are renting it out you must fill out the form. If you purchased another property in DC and filed for a Homestead Deduction on the property then you must fill out the form.

Are you still eligible if you are only a co-owner of a property?

If you are only a co-owner of a property and the other owners will not be living with said property as their principal residence then you are still eligible for the DC Homestead Deduction.

All that is required is that you meet the three qualifications which are that you are a principal resident, your property only includes five or fewer dwelling units, and you are domiciled in DC.

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.

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