Should I Cancel My Homestead Tax Exemption?

Should I Cancel My Homestead Tax Exemption?

Not sure what the homestead exemption is? The homestead tax exemption applies to property taxes and is commonly referred to as “residential property tax relief.” In the District, a house, condominium, or cooperative unit that is being used as a principal residence by an individual can claim a homestead tax exemption. The exemption will reduce the real property’s assessed value by $75,700 (as of 2020) prior to calculating your tax liability for a specific year. The deduction is a savings of $641.50 off your property tax bill. 


Important Note: The amount of the reduction can change each year, which means the benefit savings amount will also change.


Am I required to cancel my homestead tax exemption if I am renting the property?

Yes and no.


If the property is owned by an individual (or multiple individuals), and the owner (or at least one owner, in the case of multiple owners) resides on the property as their primary residence, then the Homestead Deduction benefit can be claimed. 


However, if you will no longer occupy the property as your primary  residence, then you must cancel the homestead tax exemption. By law, you have 30 days to notify the DC Office of Tax and Revenue of the change in status. Otherwise, severe penalties can be imposed.


If I remove the Homestead Deduction, is it effective immediately?

If a property loses eligibility during the first half of the tax year (October 1 - March 31), the benefit is generally rescinded for the whole tax year. However, if a property loses eligibility in the second half of the tax year (April 1 - September 30), the benefit will generally be rescinded for half of the year. 


Is there anything else I need to do or worry about?

Possibly. (But we’ll explain it so you won’t have to worry).


Keep in mind that once the Homestead Deduction has been removed, your property tax bill will increase (as of 2021 this equals $641.50). So make sure that you budget for this change so you don’t get blindsided by the additional money owed.


Also, if you have a mortgage and the lender escrows a portion of your monthly mortgage payment to pay your property tax bill, you may wish to let them know you are aware of the increase. The lender may tell you they cannot make the change until they receive the next bill. If this is the case, then make sure you put aside extra money because the lender will be billing you for the missing difference.


RentJiffy does not provide tax, legal, or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on, for tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction.


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