DC Tax Abatement
The DC Tax Abatement Program
| 28 June 2010
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.
This translates into a 2.2% swing in favor of the first-time homebuyer. Additionally, the program provides a five-year real estate tax abatement that begins October 1 following your date of closing. To qualify, you must prove that you live in the District of Columbia and meet the income requirement.Even if you did not know about the DC Tax Abatement Program at the time of your settlement, you may apply for it after the fact — you may apply for the DC Tax Abatement Program for up to three years of your original purchase date.
You will still need to meet the guidelines and supply proper documentation: You must have met the property purchase price threshold, used the property as your principal residence and have been domiciled in the District of Columbia.
This article describes the DC Tax Abatement Program and answers several commonly asked questions about the program. If you have further questions, please contact us.Frequently Asked Questions
1) 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 1.1% (of the purchase price) recordation tax; but customarily, the seller’s 1.1% (of the purchase price) 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.
2) What are the qualifying factors to get DC Tax Abatement?
The qualifying factors for DC Tax Abatement (as of May 31, 2011) are as follows:
A) The purchase price for the property must be $332,000 or less;
B) The income threshold – max gross income – must be
| Persons in household | Household income limits | |
| 1 | $59,040 | |
| 2 | $67,440 | |
| 3 | $75,900 | |
| 4 | $84,300 | |
| 5 | $91,080 | |
| 6 | $97,800 | |
| 7 | $104,580 | |
| 8 | $111,300 |
C) The property must be a principal residence; and
D) The purchaser must be domiciled in the District of Columbia.
3) 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.
4) What documents are required to get the Tax Abatement?
The documents usually required are:
1) Last 2 years income taxes;
2) Last 2 W-2s;
3) 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.
5) Who files the documents so I can get tax abatement?
The settlement agent files the required documents with the deed after closing.
6) 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.
7) 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 list the years you will be exempt from property tax.
8) 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 2011 and the tax period for 2011 is October 1, 2010 through September 30, 2011, you will not be given the exemption until the 2012 tax period. You will be required to pay real property taxes for April through September 2011. Your real property tax exemption will start 2012 and finish 2017.
