DC Tax Abatement: No Property Taxes for 5 Years

• May 19th 2010

by Joe Marhamati

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Imagine buying a house in DC and one of the perks being that you didn’t have to pay property taxes for five years. The DC Tax Abatement program allows middle-income Washingtonians just that opportunity.

Among the many purchase incentives, low-income homeownership programs, and government first-time buyer credits, the DC Tax Abatement program is often overlooked despite being one of the most attractive options for prospective buyers.

The program offers an amazing five-year exemption from paying property taxes on eligible buyer’s homes. In addition, it exempts the purchaser from the 1.1% transfer and recordation taxes paid at closing, and provides the possibility of an additional 1.1% credit from the seller. Ordinarily, a buyer and seller exchanging property in the District of Columbia each have to pay 1.1% of the purchase price in recordation and transfer fees to the city. If you know that you’re going to apply for the tax abatement, you can ask the seller to credit you the 1.1% they would otherwise be paying. For a $300,000 unit, this would save the buyer $3,300 in their own transfer fees, and upwards of $6,600 depending on the transaction. On top of that, over the five years during which the buyer would otherwise be paying property taxes, the savings would be a whopping $9,881.25. In short, the potential to drastically reduce one’s tax burden at the front-end, in terms of closing costs, and over the course of the first five years of ownership is significant.

The catch? The purchase cannot be greater than $319,920, and income limits to qualify begin at $53,760 for a single-person household and increase by approximately $7,680 for each additional person. Also, the purchase must be for a principle residence, and the buyer must be a current DC resident. Despite these caveats, for a buyer with a modest income, the program could quite literally amount to a better deal than the federal $8,000 homebuyer credit and the $5,000 DC first time homebuyer credit combined.

In most cases your real estate agent and title company can assist you in applying for the program, or you can do so yourself by filling out Form ROD 9 on the DC Office of Tax and Revenue website.

One minor catch to be aware of: the five-year tax exemption begins in the fiscal year after your purchase. This means that if you close on October 1st, you are responsible for the entire first year’s property tax liability but nothing the following five years. However, if you close on September 30th, you pay literally nothing for the first five years.

This article originally published at https://dc.urbanturf.com/articles/blog/dc_tax_abatement_no_property_taxes_for_5_years/2089.