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.
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.