The DC Homestead Deduction: How to Save on Your Property Tax Bill

The DC Homestead Deduction is an essential tax-saving opportunity for eligible homeowners, as it can significantly lower their taxable property value.

In this article, we will discuss the eligibility criteria, how to establish primary residence, and common issues related to the Homestead Deduction to help you take advantage of this valuable tax benefit.

Eligibility Criteria

To qualify for the DC Homestead Deduction, you must meet several requirements:

1. Own and live in the property as your primary residence.
2. The property cannot contain more than five dwelling units, including the one where you reside.
3. File form FP-100 with the Office of Tax and Revenue to apply for the deduction, as it is not automatically applied to your property tax bill.

For more information on the application process and requirements, visit the District of Columbia's Office of Tax and Revenue website here.

It is important to note that if you file the application between October 1 and March 31, you will receive the benefit for the entire tax year. However, applications filed from April 1 to September 30 will only receive half of the deduction for the first year.

Establishing Primary Residence

To demonstrate that the property is your primary residence, you must fulfill one or more of the following requirements:

1. Register your vehicle in D.C.
2. Apply for a D.C. driver's license or identification.
3. Register and vote in the District.
4. List the property as your primary residence on both Federal and District income tax returns.

Active duty military service members must file form DD 2058 along with their Homestead application and submit it to the local military Finance Office to establish the District as their domicile.

Common Issues with Homestead Deduction

1. Ownership Issues: To qualify for the Homestead Deduction, the homeowner's name must be on the deed to the property. In cases of property transfers without legal representation, a deed must be filed to transfer the property to the new owner. It is crucial to ensure proper recording of the deed with a title company if there are any issues with property ownership records.
2. Application Issues: New property owners may not be aware of the application process, especially if the property tax bill already reflects the Homestead Deduction from the previous owner. In such cases, the new owner could be subject to a reconfirmation audit, which may result in owing back taxes, interest, and penalties to the D.C. Office of Tax and Revenue.
3. Eligibility Changes: If you move out of the home or it ceases to be your primary residence, you no longer qualify for the deduction. The district requires owners to notify the Office of Tax and Revenue within 30 days of eligibility changes. Failure to do so may result in a penalty of 10 percent of the delinquent tax and 1.5 percent interest for each month the property improperly received the Homestead Deduction.
   

Understanding the DC Homestead Deduction and its requirements is vital for eligible homeowners looking to save on their property tax bill. By ensuring compliance with the eligibility criteria, establishing primary residence, and addressing common issues, you can maximize your tax savings and avoid potential penalties.

If you need assistance navigating the Homestead Deduction process or professional help with other property management matters, the team at Gordon James Realty is here to help. Our expert property management services can guide you through tax issues, rental property management, and more. Contact us today to learn how we can support you in maximizing your property's value and minimizing headaches.