DC transfer and recordation tax is due to the Office of Tax and Revenue (OTR) Recorder of Deeds during the sale of residential property in the city. This tax is part of various closing costs such as lender charges, settlement fees, title insurance, escrow reserves, pre-paid interest, and real estate tax. But generally, the DC transfer and recordation tax is the highest of all closing cost line items.
In DC, deed transfer tax is generally paid by the seller, while the buyer covers deed recordation tax. These tax amounts are calculated based on the purchase price of the home. If the sale is $399,999 or less, then the DC transfer and recordation tax rate is 1.1%. Sales of $400,000 and above are taxed at the rate of 1.45%. For example, if you bought a $250,000 home in DC, the buyer and seller would each pay $2,750 in DC transfer and recordation tax. A $500,000 home purchase would require $7,250 from both the buyer and seller.
DC does offer a tax abatement program for qualified buyers to avoid paying recordation tax at closing. In order to qualify for tax abatement, the homebuyer must meet income limits and purchase a home less than $367,200. (These limits vary from year to year.) This will eliminate the 1.1% recordation tax and add an allowable credit of 1.1% from the seller, equal to the transfer tax. The program also exempts the buyer from real property taxes for five years.
The income requirements for tax abatement only apply to the household occupants. For example, if parents cosign a loan to help their son or daughter purchase a home in DC, the parents’ income does not count toward the household income (as long as the parents are not occupants). This could help avoid the expense of DC transfer and recordation tax.
If you were unaware of the tax abatement laws at the time of your home purchase and think you may qualify, you can still apply up to three years after closing. If approved, you may be entitled to a portion of your DC transfer and recordation tax.