Property Assessments, the Homestead Deduction and the Owner-Occupant Tax Credit
Property Assessments
The assessed value of all real property as of the valuation date shall be listed annually on the estimated assessment roll for real property taxation purposes.
The assessed value for all real property shall be the estimated market value of such property as of the valuation date, as determined by the Mayor. In determining the estimated market value for various kinds of real property, the Mayor may do so manually or through the use of an automated system or systems such as the Computer-Assisted Mass Appraisal System. The Mayor shall take into account any factor that may have a bearing on the market value of the real property, including, but not limited to, sales information on similar types of real property, mortgage, or other financial considerations, reproduction cost less accrued depreciation because of age, condition, and other factors, income-earning potential (if any), zoning, and government- imposed restrictions. Assessments shall be based upon the sources of information available to the Mayor, which may include actual view. (§ 47-820 DC Code)
Homestead Deduction
To qualify for and receive the Homestead Deduction, the individual shall complete and file with the Mayor an application in a form prescribed by the Mayor. The individual shall certify, under penalty of perjury, that the information provided on the application form is true and the application form shall be filed in the manner prescribed by the Mayor. (§ 47-850 DC Code). A condition of eligibility for this program is that the applicant resides in the “owner-occupied property as [his or her] principal residence.”
For purposes of levying the real property tax during a tax year, the Mayor shall deduct $69,100 from the estimated market value of real property which qualifies as a Homestead. Currently this deduction results in a savings of $587.35 annually.
Class 1 Property Tax Rate
Effective fiscal year 2008 (October 1, 2007 – September 30, 2008) the Class 1 tax rate has been reduced from $0.88 per $100 of taxable assessment to $0.85 per $100. This reduction for Class 1 property amounts to $30 per $100,000 of taxable assessment per year (i.e. a $150 savings per year from the prior rate for a property with a taxable assessment of $500,000). Below is a rate table for the different Classes of property in the District.
| Class | Tax per $100 | Description |
|---|---|---|
| 1 | $0.85 | Improved residential real property that is occupied and used exclusively for non-transient residential dwelling purposes |
| 2 | $1.65, $1.85 | Commercial and industrial real property, including hotels and motels, for the first $3 million of assessed value Commercial and industrial real property, including hotels and motels, for value more than $3 million |
| 3 | $5.00 | Vacant property |
| 4 | $10.00 | Blighted property |
Owner-Occupant Tax Credit
The District of Columbia’s effort to assess properties at market value, coupled with a surge in property values in the District, has caused the assessed value of many properties to increase dramatically in the last few years. In an effort to limit the dramatic increase in the taxable liability for owners, the District has imposed an “Assessment Cap Credit.” Currently, the “cap” effectively limits the increase on taxable liability for those eligible to 10% above the prior years taxable liability.
Eligibility requirements for the credit are as follows:
- The property was not sold or transferred to a new owner in the previous tax year;
- The dwelling is the owner’s principal residence (an owner can receive a credit only on one property – the principal residence);
- There was no change in the zoning classification requested by the owner, which resulted in an increased value of the property;
- The previous assessment was not clearly erroneous;
- There was no significant construction or rehabilitation to the property that caused at least a 10 percent increase in the value of the improvements.
Implications on Transfers
While the Owner-Occupant Tax Credit provides tremendous relief for current owners it is necessary for the real estate practitioner and homebuyer to understand its implications (or lack thereof) on newly transferred property. A homebuyer purchasing property in the District of Columbia during the 2013 fiscal year (October 2012-September 2013), which will be owner-occupied, would not be eligible for the credit until fiscal year 2014 (provided there is such a credit in existence at that time). Therefore, while the current owner may be receiving the benefits of various tax credits new homebuyers must be aware that their taxes are likely to be quite different than those of the current owner.
For example:
A homebuyer has a contract to purchase a property for $600,000.00. According to MLS, the annual taxes on the property are $2,890.00. This should be a red-flag. It would be very likely that the current owner in this situation is receiving both the Homestead and the Owner-Occupied Tax Credit. For this hypothetical situation, assume that the Total Value (or Assessed Value) for the property would be $500,000.00, but because of the Owner-Occupied Tax Credit, the owner would pay taxes on a value less than the full assessment. Taxes of this amount indicate a Taxable Assessment of $340,000.00 (including an Owner-Occupant Tax Credit making the taxable assessment only $409,100.00 and further reduced by a Homestead Credit of $69,100.00). The purchaser’s taxes will not be so low, unless the assessment for the property is very low (which would change). Below is a chart reflecting the differences for the current owner versus the new owner-occupant homebuyer (Homestead eligible).
Current Homeowner New Homebuyer
| Total Value | $500,000.00 | $500,000.00 |
| Taxable Assessment | *$340,000.00 | $430,900.00 |
| Annual Tax | $2,890.00 | $3,662.65 |
* Taxable Assessment after Owner Occupant Credit and after $69,100 Homestead Credit.
As you can see the benefit of the Owner-Occupant Tax Credit to current owners is substantial, but the implications of the removal of this credit have a significant impact on real property taxes for the new homeowner.
For particular tax assessment as tax liability contact the District of Columbia Office of Tax and Revenue at 202-727-4829 or access the following link with a property’s lot and square:https://www.taxpayerservicecenter.com/RP_Search.jsp?search_type=Assessment
