Benjamin Franklin is quoted as saying “In life two things are certain: death and taxes.”
Franklin was right. As a landlord in D.C. (or anywhere else), you certainly do need to worry about a variety of taxes.
Real property tax (aka property tax)
You already know that you have to pay property taxes. But maybe you didn’t know this: If your rental property was your primary residence but it no longer is, and you have a Homestead Exemption on that property, then you must cancel the exemption. The cancellation does not happen automatically when you apply for a rental license. Failure to remove the exemption can result in you getting stiff penalties plus having to pay back the credit you received. And remember – when you remove the exemption, the taxable assessment (value) of your property will go up by $75,700, which equates to an increase in your property tax bill of $641.50 annually.
Franchise tax (aka income tax)
Due Date: April 15th
Required Filing: D-30 Unincorporated Franchise Tax Return or D-20 Corporate Franchise Tax Return
Renting out property in D.C. is considered a business function and, as such, it requires a business license. The rental income that you receive is considered business income. Even if you are not a D.C. resident, and you file taxes in another state or foreign national that does not normally file taxes in the U.S., you are still obligated to pay D.C.’s franchise tax and follow its reporting requirements.
If the property owner/licensee holder is a sole proprietor, trust, or any business entity that is not a corporation, you will be subject to an unincorporated business franchise tax. This means you are required to file a D-30 tax return with the Office of Tax and Revenue (OTR).
If you (the owner/licensee holder) are a corporation, you will be subject to a corporate franchise tax. This means you are required to file a D-20 tax return with the OTR.
2019 Tax Rate: 8.25%*
Minimum Tax: $250 (if combined gross income is $1 million or less)*
* As of November 2021, OTR has not published a new tax rate or minimum tax on its site; that is why we are using 2019 numbers.
Read more information about the unincorporated franchise tax in our article What is Unincorporated Franchise Tax? For information on the required tax return, see our article Do I need to file a D-30?
If the property owner/licensee holder is a corporation, we strongly recommend you speak with your tax professional who can best advise you on corporate tax requirements.
Personal property tax
Due Date: July 31st
Required Filing: FP-31 Personal Property Tax Return
In many cases, as part of your tax registration, OTR will automatically register you (or your business entity) for a personal property tax return. This tax is levied once per year and requires the filing of an FP-31 tax form.
According to the DC Office of Tax and Revenue, individuals, corporations, partnerships, executors, administrators, guardians, receivers, and trustees that own or hold personal property trust in DC must file a personal property tax return.
DC Code § 47–1522, “ ...the District shall levy a tax against every person on the tangible property owned or held in trust in that person’s trade or business in the District. The rate of tax shall be $3.40 for each $100 of value of the taxable personal property, in excess of $225,000 in value.” This section of the code further states that “(d) Real property improvements that do not become an integral part of the realty shall be subject to the personal property tax imposed by subsection (a) of this section.” Here is the complete Code § 47–1522.
In the event that you do not have $225,000 worth of personal property, you will likely have no tax due. Note: Even if you do not have a tax liability, you must still file a personal property tax return (FP-31), which is due annually by July 31.
D.C. sales tax on hotels (aka occupancy tax on transient accommodations such as Airbnb, VRBO, Homeaway or the like)
If you are renting short-term (for tax purposes, short-term is considered reservations that are for less than 90 days), as landlord, you are required to collect an occupancy tax as part of every reservation and remit the tax to the OTR. As of November 2021, the tax rate is 14.95% and is based on the total amount of the reservation, which includes listing price, cleaning fee(s), and guest fee(s). For more information, view YYY.
Before you rent a property, you should always seek the expertise of an attorney and an accountant who can advise you on legal and tax liabilities. The taxes we have presented here are ones we are aware of; they are presented for informational purposes only. RentJiffy is not a law firm or tax firm and does not provide legal or tax advice.