Why is the DC Council considering new tax breaks that would include the wealthiest buyers of the highest-priced real estate? Especially when DC already has a generous tax assistance program for first-time homebuyers covering about half of DC residents. Rather than cutting taxes for buyers of multi-million dollar homes, which would reduce funding dedicated for affordable housing, the Council could consider changes to the existing help targeted to low- and moderate-income buyers.
The District already waives the deed tax and provides a five-year property tax exemption to low- and moderate-income first-time homebuyers– for example, to a family of four earning less than $84,000 and purchasing a home worth less than $439,000. This program is well-targeted, and yet is broad enough that nearly half of all DC residents have eligible incomes, and a significant share—40 percent—of townhome, duplex, and condo sales have qualifying purchase prices.[1]
But the DC Council is now considering a costly tax cut that would mostly benefit high-income buyers. The First-Time Homebuyer Tax Benefit Amendment Act would cut the deed recordation tax for people who don’t already own real estate in DC (but may own homes in other jurisdictions) in half, from 1.45 percent to 0.725 percent, for homes selling for over $400,000. For residents purchasing home for less than $400,000, the bill would cut the tax rate from 1.1 percent to 0.725 percent. Because many low- and moderate-income homebuyers already don’t have to pay the deed tax, most of the tax cut would go to buyers of high-priced homes.
The bill also would significantly reduce the city’s revenue, making it harder to fund the effort to end chronic homelessness, reform TANF, and to offset potential federal budget cuts. In particular, cutting the deed tax reduces funding dedicated to the Housing Production Trust Fund, the District’s main tool for building or renovating affordable housing and helping those with the most urgent housing needs.
The DC Council should not approve this bill. However, if the Council believes more help for first-time home purchasers is needed, it should limit new tax breaks to moderate-income families buying reasonably priced homes, such as:
- Homebuyers with incomes below 120 percent of the area median ($128,400 for a family of four), the income level served by DC’s low-cost mortgage and down-payment assistance program, DCHFA Open Doors.
- Homebuyers purchasing a home below the median sales price ($548,000). A maximum purchase price is needed to account for homebuyers who have moderate incomes, but who are using their or their family’s substantial to buy higher-priced real estate.
With federal budget cuts likely and DC’s vulnerable residents facing great needs, the DC Council should rethink tax cuts for high-income homebuyers, and amend or vote down the bill at its legislative session next week.
[1] DCFPI analysis of 2015 American Community Survey 1-year PUMS. 40 percent of the condos, coops, and townhomes/attached 0-3 bedroom homes sold in DC in 2015 were purchased for under $400,000. RealEstate Business Intelligence.
