Before you move out to the suburbs for the schools or silence (or both), here’s a pertinent fact: D.C. homeowners pay the lowest property taxes in the region, according to a report released today by the D.C. Fiscal Policy Institute, a local nonprofit research organization.
The five-page report finds that compared with homeowners in four surrounding counties (Arlington, Fairfax, Montgomery, and Prince George’s), those in D.C. often pay at least $1,000 less a year in property taxes. Although homes in the District are generally worth more than those in the suburbs, DCFPI policy analyst Wes Rivers explains that the lower property taxes in part result from policies designed to limit the amount homeowners owe.
“When buyers compare [regions], certainly no one can argue that property taxes prevent people from locating in the District, especially given the dollar amount people are paying here as compared to the suburban counties,” Rivers says. “But it is surprising that there are these policies, like the homestead deduction, which make [our] property taxes lower.”
The analysis divided homes in the area into middle-income ($68,500 to $129,000 annually) and high-income ($129,000 to 214,000 annually) households, using area median income figures from the U.S. Department of Housing and Urban Development. U.S. Census data from 2013 provided the average values for homes within those income brackets, and across jurisdictions. DCFPI then found 50 homes in each county that have values close to those averages and were sold between September 2014 and last February.
In D.C., the mean home values for middle- and high-income households were $495,236 and $634,690, respectively—both above those for other jurisdictions except Arlington.
D.C. homeowners owe 85 cents for every $100 of taxable assessments, which are based on state laws and are almost always lower than full assessments. Arlington and Fairfax county homeowners, on the other hand, owe 99.6 cents and $1.09 per $100, respectively; those in Montgomery and Prince George’s counties owe $1.05 and $1.446 at a minimum.
Coupled with lower tax rates, D.C.’s property-assessment policies mean more dollars saved for homeowners who choose to buy here. For example, the “homestead deduction,” adjusted annually for inflation, is $71,400; additionally, D.C. has a cap on increases in taxable assessments at 10 percent each year, no matter how much a home’s value grows.
“Virginia counties have no homestead deduction or assessment cap, so that their tax rate applies to a home’s full value,” the report explains. “Maryland homeowners receive a homestead credit which caps annual assessment increases which can vary from municipality to municipality.”
According to Rivers, low-income households in the District (which weren’t included in the report, but have lower homeownership rates) get Schedule H tax credits that mitigate how much they must pay. Similarly, seniors making less than $125,000 per year can receive property tax rate cuts.
The report comes as the D.C. Council weighs at least one policy that could help incentive people to buy homes in the District. At-Large Councilmember David Grosso introduced a bill earlier this month that would reduce recordation taxes for first-time homebuyers, in effect saving them thousands through a tax credit. To date, they hover north of 1 percent of a home’s purchase price.
Photo by Darrow Montgomery. Charts via DCFPI report