Did you know the DC Homestead Deduction can lower the tax burden of eligible homeowners, reducing their taxable property value by $70,400 for 2015? That’s just over $600 in savings under the current tax rate.
To be eligible for the Homestead deduction you must meet the following criteria:
- You must own and live in the property. The property cannot contain more than five dwelling units, including the unit where you reside, to be eligible for the deduction.
- You must apply for the Homestead deduction by submitting form FP-100 to the Office of Tax and Revenue. The Homestead benefit is not automatically applied to your property tax bill. You must have filed the form and applied for it. For example, if you have owned and lived in your D.C. home for three years, but you only apply for the deduction at the beginning of the third year, your property would qualify for all or part of the year in which the application was filed and for future years. However, you would not be entitled to a retroactive tax credit for the years prior to filing.
If you file between October 1 and March 31, you’ll get the benefit for the entire tax year. Applications filed from April 1 to September 30 only receive half of the deduction for the first year.
- You must demonstrate that the property is your primary residence. This requires one or more of the following:
- Registering your vehicle in D.C.
- Applying for a D.C. driver’s license or identification
- Registering and voting in the District
Your Federal and District income tax returns should also list this property as your primary residence. Military service members on active duty must file form DD 2058 with their Homestead application. This form should also be filed with the local military Finance Office to establish the District as the domicile of the service member.
Washington Lawyer magazine mentions several potential issues for owners interested in the Homestead Deduction. They include:
1. Ownership Issues
To qualify, the homeowner’s name must be on the deed to the property. In the event of property transfers without legal representation, a deed must be filed to transfer the property to its new owner. It could also be useful to investigate the proper recording of the deed with a title company if there are other issues with property ownership records.
Until the deed is filed and and owner can demonstrate legal title to the property, they’re not eligible for the Homestead deduction. Consequently, transfers in informal transactions require thorough attention to detail to ensure that the owner receives the proper tax benefits within a reasonable time frame.
2. Application Issues
Owners may not be aware of the the application process. This is especially true when a new owner buys a property that had been receiving the deduction. Often, owners don’t know they need to file the FP-100 form to legally get the benefit. If the property tax bill already reflects the Homestead deduction from the prior owner, the new owner could be subject to a reconfirmation audit. After the audit, the owner could owe 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 being your primary residence, you no longer qualify for the deduction. The district requires owners to notify to the Office of Tax and Revenue within 30 days of eligibility changes. Owners who fail to do so face a penalty of 10 percent of the delinquent tax and 1.5 percent interest for each month when the property improperly received for the Homestead deduction.