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Remember to Cancel the DC Homestead

Why is it important to remember to cancel the DC Homestead deduction real property tax credit on a property that is no longer your principal residence?

The simple answer is that you run the risk of being audited by the District of Columbia’s Homestead Department and incurring a hefty tax bill for past due real property taxes.  Not only does the District of Columbia recoup the amount of the credits received on the property, but they also include penalties and interest on the past due amount.  They can do so retroactively for up to 3 tax years so as you can imagine, this can add up quickly.  Federal Title often fields inquiries from homeowners who have found themselves in this unfortunate situation that do not understand how they are stuck with such a huge tax bill.

Scenarios to remember to cancel the DC Homestead

We make it a point at closing to advise clients that there are a few scenarios that require them to cancel the homestead deduction credit on the property to avoid these recapture taxes:

  • When you move out and are now renting the property.
  • When you are no longer domiciled in the District of Columbia.
  • When you purchase and file the DC Homestead Deduction on a new property and
    • intend to rent your old property, or
    • the sale of the old property does not occur within 30 days.

Most buyers are unaware that they must cancel out the homestead on the old property when they are purchasing and filing a homestead deduction on the new property.  They assume that the District of Columbia will automatically cancel out the other one.  That is not the case. The homeowner is required to complete the cancellation within 30 days of the date of the above events or be subject to the recapture tax.  It is now easier than ever to cancel the homestead by going online and electronically submitting the form with the District of Columbia Office of Tax and Revenue.  If you need any guidance, don’t hesitate to reach out to Federal Title for assistance.

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