By renting, will my property taxes increase?

The short answer is yes. 


Your real estate property taxes are based on a formula, with the basis of the calculation being the “assessed value” of the property. The assessed value can (and probably will) change periodically depending on several factors but most notably “comparable” sales near your property. Needless to say, as property values around yours rise, so does your assessed value and, in turn, your property tax bill.


For principal residences occupied by owners and receiving the Homestead Exemption, there is a reduction in assessed value. As of 5/31/2021, the amount the City reduces the taxable assessed value by is $76,350, which results in a tax savings of $648.97. 


When renting a property that will no longer be your primary residence,  the property would no longer be entitled to the Homestead Exemption, and you must pro-actively cancel the exemption. As a result, your property tax bill will increase based on the total taxable assessed value as the previous owner-occupant reduced assessment will disappear.


If you have a mortgage and your mortgage holder escrows to pay real property taxes, you may want to contact your mortgage company so they can adjust the escrow or you should consider setting aside additional money to make up the difference when the time comes to pay the property tax bill.


DC, by law, requires owners to notify the DC Office of Tax and Revenue of a change in eligibility status within thirty days of that change taking effect. If you fail to cancel your Homestead Exemption, the Office of Tax and Revenue’s Homestead Auditing team may catch you and impose significant penalties and interest.  The City may utilize an outside collection agency that may charge a collection fee of up to 25% of the amount owed by law. 


Note: please be aware that there is no statute of limitations on how far back the City can audit, bill, and collect delinquent taxes, penalties, and interest.


For further information on this subject, you should seek the counsel of your tax advisor/preparer OR contact the Real Property Tax Division of the District of Columbia Office of Tax and Revenue by dialing 202-727-4829. RentJiffy is not a tax service provider and thus cannot provide tax or legal advice.

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