Understanding Washington D.C.’s Transfer Tax: A Quick Guide
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Joseph Gordon Associate EditorJoseph Gordon is an Associate Editor with HomeLight. He has seven years of experience reporting on the commercial real estate and insurance industries. He holds an MFA in Creative Writing from the University of San Francisco.
At HomeLight, our vision is a world where every real estate transaction is simple, certain, and satisfying. Therefore, we promote strict editorial integrity in each of our posts.
Selling a home in Washington, D.C., involves managing several different costs, including real estate transfer taxes. These taxes are fees imposed by the government when a property changes ownership. In Washington, D.C., transfer taxes can significantly impact your final proceeds from the sale.
Our short guide will explain how these transfer taxes work in Washington, D.C., helping you understand what to expect when selling your property. We’ll cover who is responsible for paying these taxes, the different types of transfer taxes, and potential exemptions.
Connect with a Top Agent to Help Maximize Value
Even rockstar agents can’t make your tax liability disappear, but HomeLight data shows that the top 5% of agents across the U.S. help clients sell their home for as much as 10% more than the average real estate agent, helping offset the tax bill.
Disclaimer: This post is for educational purposes only and does not constitute legal or financial advice. Links and mentions of Washington D.C. area tax services or attorneys should not be considered endorsements.
What are transfer taxes?
The Federal Trade Commission defines transfer taxes as a tax imposed by state or local governments when the title to a property is transferred from one owner to another. Essentially, when you sell your home and transfer its legal ownership, the government charges a tax on this transaction.
The amount you owe in transfer taxes depends on the location of your property, as state, county, and city regulations vary. These taxes, like other forms of taxation, are designed to generate revenue for public services and infrastructure.
Who pays for transfer taxes?
In Washington, D.C., the responsibility for paying transfer taxes typically falls on both the buyer and the seller. However, the exact terms can be negotiated in the sale contract. Often, it is a shared expense, with each party covering a portion of the total transfer tax amount.
What are the types of transfer taxes?
Washington, D.C., has two main types of transfer taxes: a deed recordation tax and a deed transfer tax. Both are assessed based on the overall value of the property at the time of the sale.
Deed Recordation Tax
- Applicability: Applies to the recording of all deeds to real estate in Washington, D.C.
- Basis: Value of consideration given for the property or fair market value if the consideration is nominal or non-existent.
- Current Tax Rate:
- 1.1% of consideration or fair market value for residential property transfers less than $400,000.
- 1.45% of consideration or fair market value on the entire amount for transfers greater than $400,000.
- Note: For residential properties under $400,000, the rate is 1.1% of consideration or fair market value.
Deed Transfer Tax
- Applicability: Applies to each transfer of real property when the deed is submitted for recordation.
- Basis: Consideration paid for the transfer or fair market value if the consideration is nominal or non-existent.
- Current Tax Rate:
- 1.1% of consideration or fair market value for residential property transfers less than $400,000.
- 1.45% of consideration or fair market value on the entire amount for transfers greater than $400,000.
- Note: For residential properties under $400,000, the rate is 1.1% of consideration or fair market value.
Other transfer fees
In addition to transfer taxes, there are possible fees to consider, such as from a homeowner’s association or another local neighborhood organization. Again, as these can vary heavily based on location, it’s important to consult a professional.
If you’re selling your home for sale by owner, consulting a professional might help with some of the finer points of the process and give you a better idea of what you can expect.
Are transfer taxes deductible?
Unfortunately, transfer taxes are not deductible on your income tax return. However, there is a strategy to possibly lower your capital gains tax liability. Capital gains are the profits made from selling your home, and these are subject to federal taxation, just like other asset sales.
The IRS allows sellers to include transfer taxes as part of their selling costs. By treating transfer taxes as selling costs, you can deduct these expenses from the total sale price of your home. This effectively reduces your taxable capital gains, helping to minimize the tax you owe on the profit from your home sale.
Transfer tax exemptions
In Washington, D.C., some sellers may qualify for exemptions from transfer taxes. These exemptions include:
- Transfers by the federal or D.C. governments.
- Transfers by organizations with valid property tax exemptions.
- Transfers between family members or domestic partners without actual consideration.
- Deeds releasing property used as security for a debt.
- Transfers securing a debt or obligation.
- Transfers confirming, correcting, or modifying a previously recorded transfer.
- Transfers to lower-income homeownership households, nonprofit housing organizations, or cooperative housing associations.
- Transfers involving revocable trusts where the transferor is the current beneficiary or named beneficiary due to the grantor’s death.
- Transfers to resident management corporations.
Estimating transfer taxes for your home sale
For a quick estimation of your net proceeds from selling your Washington D.C. home, try HomeLight’s Net Proceeds Calculator. This tool accounts for closing costs, including transfer taxes, agent fees, and any renovations, providing you with a clear picture of your potential financial outcome.
For a more accurate assessment of transfer taxes and other closing expenses, it’s wise to consult with a top real estate agent. They can help you understand and possibly negotiate these costs. While transfer taxes are often considered the responsibility of either the buyer or seller, the specifics can vary based on the market and the terms of your sale.
Header Image Source: (Vlad Tchompalov/ Unsplash)
