Property Tax Rates and DC Real Estate
How DC Property Tax is calculated and what it means for your home purchase or sale
Property taxes are on the minds of many these days. The recent passage of the new tax bill has had homeowners all over the country — as well as local DC real estate owners — rushing to pay their 2018 property tax bill in 2017, in order to take advantage of the deduction offered under the prior tax policy. While this strategy seems doomed to fail–experts say the deduction is based on assessments that hadn’t yet been issued–it begs the question of how to save on property taxes in the first place.
Homeowners in the DMV are somewhat unique in that they have a choice of three areas–Maryland, Virginia, and DC–when evaluating their residential options. Part of the calculus that requires is a comparison of DC property tax rates. Especially now that they will be capped for deductions.
What is the purpose of Property Taxes?
From streets to schools, first responders to medical services, property taxes are an integral part of the funding of most municipal governments, services, and infrastructure. Many areas also use sales taxes to supplement, especially those with a large commuter population or tourist industry.
How are Property Taxes calculated for DC real estate?
DC property tax is calculated on a classification scale designed to differentiate among a variety of possible property types. They encompass everything from vacant lots to multi-million dollar commercial properties. The current classification for residential properties is Class 1, taxed at a rate of $0.85 per $100.
What does that mean? Assume you own a home worth $500,000. Divide that by $100 to get an answer of $5,000. If you then multiply that by .85, you’ll end up with an annual tax of $4,250. Two payments are split and collected at the end of March and September each year. For most homeowners with a mortgage, these payments are included in an escrow account as part of the mortgage and are paid directly by the lender.
There are some deductions available, including Homestead Relief, a Senior Citizens Property Tax Deduction, and a DC Property Tax Deduction for homeowners with disabilities. These require an application process, but are worth checking out if you think you qualify.
How does DC compare to Maryland and Virginia?
Property tax rates on DC real estate are often significantly lower than neighboring municipalities in Maryland and Virginia, owing in part to the financial impact of the tourism industry in the District. How much lower?
Montgomery County: $1.02 per $100
Washington County: $1.082 per $100
Howard County: $1.01 per $100
Fairfax City: $1.06 per $100
Fairfax County: $1.13 per $100
Arlington: $0.996 per $100
Alexandria: $1.13 per $100
Loudoun County: $1.15 per $100
In addition, while many of these rates are county base rates, some municipalities add local taxes on top. This means that rates are variable even within the same area. Because the District taxes at the same rate across the board, DC residents don’t have to worry about this variability.
While property taxes are collected each year, DC, Virginia, and Maryland all charge a tax at the time of home sale. The transfer and recordation tax is a tax collected at settlement and each jurisdiction applies a different rate. Taxes are a hot topic right now which is why it is always important to speak with a lender to calculate estimated closing costs and ongoing real estate taxes.
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