D.C. First-time Homebuyers Could See Relief After Election Year Passes

 

Home for sale in Washington, D.C. Image courtesy of Lindsay Reishman Real Estate.

Home for sale in Washington, D.C. Image courtesy of Lindsay Reishman Real Estate.

As housing prices continue to climb in the District, first-time homebuyers could see some relief in the new year–once election year is over.

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The First-time Homebuyer Tax Credit Amendment Act of 2014, introduced into Council by Councilmen David Grosso (I, At-Large) and Jack Evans (D, Ward 2), is tabled for the remainder of this year, but Grosso expects his colleagues will be more amenable to considering the measure in the new year once the looming election is behind them. Neither Grosso nor Evans faces re-election in 2014.

The measure would reduce to 0.725% the recordation tax levied on buyers for first-time D.C. homebuyers who will occupy the property as a primary residence–the current recordation tax is “1.1 % of consideration or fair market value for residential property transfers less than $400,000 and 1.45% of consideration or fair market value on the entire amount, if transfer is greater than $400,000.”

The measure would leave the transfer tax payment as the responsibility of the seller, unless the parties negotiate otherwise.

Grosso said he wants the District to offer a first-time buyer credit to “give people a leg up.”

“I believe that it’s important. We used to have a first-time homebuyers tax credit for first time home buyers in the District and it was very popular,” said Grosso. He used a previous now-expired credit program to help him buy his first home in D.C.

The District of Columbia Association of REALTORS® (DCAR) supports reducing the taxes, which are significantly higher than D.C.’s surrounding jurisdictions.

“We want to support first time homebuyers who come into our city as much as we possibly can and the costs are prohibitive. We have the highest transfer and recordation tax in the United States with the exception of New York City,” DCAR President Bonnie Roberts Burke said in an interview.

A May 2013 study from the Department of Economics at Howard University found that D.C.’s transfer and recordation tax rates are five to six times higher than rates in neighboring Virginia counties and cities and 85% to 193% of rates in nearby Maryland counties.

For a home that costs $399,999 and qualifies for the 1.1% tax, that comes to about $4,400 on top of any down payment. For a home sold at the median sale price for a home as of Sept. 30, $502,796, the rate would be 1.45% and in D.C.,  or just under $7,300 at closing for the buyer.  Under the new tax credit, assuming the buyer qualifies, the buyer would pay about $2,900 and $3,645 respectively.

Roberts Burke noted that these taxes levied at closing cannot be financed so buyers need to have to pay them out-of-pocket.

“It is hard to get all the upfront money to get into the District,” said Edward Krauze, CEO of DCAR.

So why is the tax so much higher than surrounding jurisdictions? Part of the reason is D.C. uses 15% of the tax receipts from these home sale taxes for the Housing Production Trust Fund (HPTF).

HPTF provides funds to support affordable housing development in D.C.

Grosso said the HPTF is the reason his colleagues will not touch the tax rates.

“They don’t want to be seen as not supporting affordable housing” he said.

But Gross said he supports providing a more predictable source of revenue for affordable housing. He would like to see the HPTF funded through the general fund of the D.C. budget rather than recordation taxes.

This year the Council approved an annual commitment of $100 million to the HPTF from the general fund. Grosso would like to see that sort of funding stream continued.

He and Evans will likely reintroduce their amendment in the new year once the  November election is a thing of the past and a new administration and new Council colleagues are in office.

“It’s going to be a big push, but I think we’ll be able to do it. It’s just going to take some time to get it through,” said Grosso.

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