District of Columbia Taxes: 2023 Update

(July 2024)

District of Columbia Taxes: 2023 Update

In This Article

The District of Columbia’s 2023 tax changes, effective October 1, stem from the Fiscal Year 2024 Budget Support Act. Property owners gain from prior adjustments like Senior Citizen Assessment Cap Credit, while individuals see alterations in Earned Income Tax Credit and tax rates.

Read on to find out more in detail.

District of Columbia Taxes: 2023 Update:

  1. Comprehend Senior Citizen Assessment Cap Credit
  2. Understand Disabled Veterans Homestead Exemption
  3. Know the Tax Abatements for Housing in Downtown
  4. Have Knowledge of the District Earned Income Tax Credit (EITC)
  5. Be Aware of the New District of Columbia Tax Rate Schedule
  6. Take Note of Very Important 2023 Tax Changes

Recap

1. Comprehend Senior Citizen Assessment Cap Credit

https://otr.cfo.dc.gov

The Senior Citizen Assessment Cap Credit is a property tax benefit in DC that limits annual taxable assessment increases to 2 percent for qualifying seniors and individuals with disabilities who own and live in personal homes. If you’re 65 or older or have a disability and your household’s adjusted gross income is $134,550 or less, you might be eligible.

Here’s an example to understand how it works: Say your home’s value goes up from $500,000 in 2022 to $525,000 in 2023. Without the credit, your tax assessment has a 5% increase, but with the credit, it’s limited to a 2 percent increase. So, if the property tax rate is 0.85 percent, you save $127.50 on your tax bill when you apply for this credit.

This benefit helps ease the property tax burden for eligible seniors and people living with disabilities, ensuring taxes don’t surge dramatically due to increased property values.

2. Understand Disabled Veterans Homestead Exemption

The Disabled Veterans Homestead Exemption in DC offers a substantial property tax break for eligible disabled veterans or surviving spouses. This benefit grants a $445,000 deduction on the assessed value of your primary residence. Here’s an example to illustrate the significant savings it provides:

If you’re a disabled veteran residing in a $600,000 home in DC, without this exemption, your property tax calculation is based on the full market value, amounting to $5,100 at a tax rate of 0.85%. However, when you apply for the exemption, your taxable assessment drops to $155,000, resulting in a tax bill of just $1,317.50. Essentially, you save a substantial $3,782.50 in property taxes when you use this benefit.

This exemption is a valuable support, acknowledging the sacrifices veterans make and ensuring more financial stability in a veterans’ homeownership journey. It’s an essential way to give back and honor selfless service.

3. Know the Tax Abatements for Housing in Downtown

The tax relief initiative in downtown DC targets real estate undergoing a change of use, providing at least ten housing units. Owners or developers meeting specific criteria—like location, size, affordability, and environmental standards—can apply for these property tax abatements.

Imagine owning a $10 million vacant downtown office building in 2023 and converting it into 100 residential units, with 20% earmarked for low-income households. Applying for this abatement leads to a taxable assessment reduction of 80% over 10 years, dropping from the market value to $2 million.

For instance, at a 1.65% tax rate, without the abatement, the tax bill is $165,000. With the abatement, it plunges to $33,000. This means an annual tax savings of $132,000.

In essence, this abatement allows substantial tax savings for property owners or developers reimagining spaces to foster housing in downtown DC, contributing to community growth and affordable living.

4. Have Knowledge of the District Earned Income Tax Credit (EITC)

The District Earned Income Tax Credit (EITC) provides a refund to low- to moderate-income working individuals and families in DC. In 2022, the DC EITC increases to 70% of the federal EIC, offering eligible taxpayers a larger benefit.

A single parent with two qualifying children receives a federal EIC and a DC EITC. However, you only receive 40% as a lump sum with the tax refund, with the remaining 30% in monthly installments over 11 months. To receive payments on time, ensure your address and banking information are up to date.

Additionally, from 2023, non-citizen or non-resident alien DC residents with a valid ITIN can receive a District EIC, amounting to 40% of what you get if eligible for the federal EIC. This initiative aims to support immigrant workers and families, fostering economic inclusion in the DC community. Overall, this combined federal and DC EITC approach provides substantial support to eligible taxpayers.

5. Be Aware of the New District of Columbia Tax Rate Schedule

The updated District of Columbia Tax Rate Schedule for 2023 brings significant changes, affecting tax rates and brackets for various income levels and filing statuses.

This means adjustments to what you owe as a taxpayer. The District of Columbia has tax rate schedule with a range starting at a rate of 4% to as high as 10.75%.

For lower-income earners, rates remain the same or might even decrease. These alterations reflect the necessity for taxpayers to consider the updated schedule’s implications, especially in higher-income brackets, potentially influencing your overall tax responsibilities.

6. Take Note of Very Important 2023 Tax Changes

  • Sales and Use Tax Increase: Starting April 1, 2023, and lasting until March 30, 2027, the sales and use tax on accommodations in the District goes up from 14.95% to 15.95%. This is to support tourism recovery.
  • Street Vendor Amnesty Program: The Street Vendor Advancement Amendment Act of 2023 introduces an amnesty program. If you owe the District for minimum sales tax, you can apply to have some or all of it waived. You need to file an application and provide proof of your outstanding tax.
  • Alcoholic Beverage and Cannabis Tax Limit: The revenue from sales tax dedicated to the Reimbursable Detail Subsidy Program has a limit of $1,070,000.
  • Arts and Humanities Fund Limitation: Sales and use tax revenue dedicated to the Arts and Humanities Fund has a limit of either 5% of undedicated sales tax revenue or 102% of the previous fiscal year’s allocation for fiscal years 2024-2027.
  • Parking Services Tax: Sales tax on parking services for WMATA operating subsidies is at 102% of the previous fiscal year’s revenue for fiscal years 2024-2027.
  • Sports Wagering Tax Change: The Early Childhood Development Fund no longer receives revenue from the sports wagering tax.
  • Real Property Tax Rebates: If you’re applying for a real property tax rebate under the Performing Arts Promotion Tax Rebate Clarification Amendment Act of 2022, submit your application to the Office of Cable Television, Film, Music, and Entertainment (OCTFME). The Office of Tax and Revenue (OTR) no longer accepts these applications.
  • Affordable Housing Tax Abatement: Starting October 1, 2024, the real property tax abatement for affordable housing increases from $4 million to $5 million for tax year 2025, with annual cost-of-living adjustments.
  • Downtown Housing Abatement: From October 1, 2027, the amount of abatement for housing in downtown areas increases to $41 million, with annual cost-of-living adjustments. The law also introduces affordability requirements.
  • Creative and Open Space Tax Rebate: The qualifications for real property or possessory interest tax rebates are now based on various income-earning activities like education, research, consulting, and more.
  • Commercial Recordation and Transfer Taxes: The Recordation and Transfer Taxes Amendment Act of 2019 expires on September 30, 2023. Starting October 1, 2023, commercial recordation and transfer tax rates return to 1.45% of consideration for each.
  • Tobacco Tax Increase: There’s an increase in the surtax on cigarette packages to $0.53 per pack, making the total tax $5.03 per pack. Other tobacco products have a tax rate of 79%.
  • Motor Fuel Tax: The local transportation surcharge on motor vehicle fuels increases to $0.114 per gallon, resulting in a total tax of $0.349 per gallon.
  • DC Earned Income Tax Credit (EITC): Starting January 1, 2023, residents of DC who are not U.S. citizens or resident aliens but are eligible for the federal earned income credit can claim the DC EITC using an individual taxpayer identification number (ITIN) from the IRS. For 2023, if your DC EITC is $1,200 or more, you receive it in 12 equal monthly payments; otherwise, you get it as a lump sum.

Recap

To be up to date on 2023 tax changes in DC, you need to understand the Senior Citizen Assessment Cap Credit, Disabled Veterans Homestead Exemption, and Tax Abatements for Downtown housing. Moreover, alterations affect the District’s Earned Income Tax Credit, introducing a new Tax Rate Schedule. And, importantly take note very specific changes for 2023 fiscal year.

This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. . For comprehensive tax, legal or financial advice, always contact a qualified professional in your area. S’witty Kiwi assumes no liability for actions taken in reliance upon the information contained herein.

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