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Today’s installment of Tax Commission Tuesday looks at some of the proposed changes being considered by the DC Tax Revision Commission to DC’s property taxes. One thing the commission’s researchers have found is that two homeowners with homes of the same market value could have vastly different tax bills, due to key elements of the city’s property tax law. Unfortunately, one of the proposals before the commission would increase those disparities, and provide the greatest benefits to DC residents with high-value homes. On the other hand, another proposal would help to narrow the disparities in property taxes levied in DC.
Before getting to the proposals, there are some key facts you should know about DC’s homeowner property tax:
- DC’s residential property taxes are the lowest in the region: Our residential rate ‘ 85 cents per $100 of assessed value ‘ is the lowest in the metropolitan region. Combined with two other benefits ‘ DC’s homestead exemption and an annual property tax assessment cap of 10 percent ‘DC homeowners on average pay far lower property taxes than an equivalent home in a surrounding jurisdiction.
- Homeowners pay taxes on less than the full value of their home: The average DC homeowner pays taxes on approximately 73 percent of their actual assessed value because of property tax mechanisms DC has in place to reduce one’s taxable assessment.
Now onto two of the many proposals before the commission ‘
Making Disparities Worse: Cutting the property tax assessment cap to five percent.
Currently, DC has a 10 percent cap on the amount a home’s taxable assessment can increase from year to year. It is a way to help homeowners who would otherwise face a large tax increase when their home value jumps, even though their income may not be rising as fast. The Commission is considering cutting the cap to five percent. However, a DCFPI analysis shows that this change would largely benefit high-income homeowners. In fact, homes worth more than $550,000 comprise 31 percent of the total households in DC, but would receive 64 percent of the total tax savings from this change.
Lessening Disparities: Increase the minimum floor for taxable assessments.
DC has two mechanisms that reduce property taxes for homeowners: a homestead deduction which reduces the taxable assessment of an owner-occupied home and the 10 percent property tax assessment cap. As a result, the average DC homeowner in 2011 paid taxes on 73 percent of the total assessed value, but there is tremendous variation. Some owners pay taxes on only a fraction of their home’s value while others pay tax on nearly 100 percent. Current law states that DC homeowners must pay tax on a minimum of 40 percent of their assessment, even if the homestead deduction and property tax cap would leave them below this floor. Raising the floor to 60 percent could help make the property tax more equitable by reducing such disparities, and it would ensure a more stable base to fund ongoing city services.
A Final Note: Let the Tax Commission Know What You Think of Their Ideas!
With its meeting on property taxes tomorrow, the Commission will have deliberated changes to all the major tax categories: income, sales, property and business taxes. But you have one more chance to weigh in with the Commission and give them your thoughts on the proposed changes to DC’s tax system before they put together their final recommendations! On November 12th, the Commission will hold a public hearing on the proposals they have considered.
For more information on how to sign up to testify, click here.
To print a copy of today’s blog, click here.
