In the District, real property is taxed based on classifications of similar use, with properties in different classes taxed at different rates. Rates are established by the Council of the District of Columbia and are subject to change. The amount of tax due is determined by dividing the assessed value of the property by $100, and then multiplying that amount by the applicable tax rate for the property. Residential property is under the Class 1 tax rate, which is $0.85. If your house is assessed at $625,000, divide $625,000 by 100 (that amount is $6,250), then multiply $0.85 by $6,250, for an annual tax of $5,312. This amount can be reduced by the Homestead deduction.
The Homestead deduction benefit reduces your real property’s assessed value by $75,700, which equates to a savings of over $643. To qualify, an individual must be domiciled in the District and own and occupy the home as their principal place of residence in the District. In order to claim the deduction, the taxpayer must file an application with the Office of Tax and Revenue. Similarly, if the property ceases to become the individual’s primary residence (or there is a change in domicile), a cancellation form must be filed. Penalties for non-compliance can be severe.
Domicile is the place where an individual has their true permanent home or habitation, without any fixed or definite intent of abandonment, and to which the individual has the present intention of returning, after any absence regardless of the length. An individual can have more than one home or residence, but he can have only one domicile. Domicile, once established, is presumed to continue until shown to have been changed. To establish domicile in the District, persons who move into the District from other states must show clearly and unequivocally physical presence in the District and intent to abandon the former domicile and remain in the District for an indefinite period.
The Office of Tax and Revenue is conducting ongoing audits of properties located in the District that have in the past or are currently benefiting from the owner-occupied Homestead deduction. If an individual begins to rent his property out in lieu of selling it, care should be given to cancelling the Homestead benefit. Taxpayer must complete a Homestead cancellation form, and notify the Office of Tax and Revenue, in writing, within 30 days of the date that he moves from the property.
If you are determined not to qualify for the Homestead deduction, Penalties are assessed at 10 percent of the deduction amount and interest at 18 percent per year on the balance due. Reclaiming an undue benefit can quickly add up to tens of thousands of dollars over time. However, OTR may waive penalties and interest for good cause where equity demands. If you are a taxpayer who is claiming the Homestead deduction in error, contact a District of Columbia Tax Attorney to discuss your options.