The Reduced Recordation Tax Incentive Goes into Effect October 2017
Starting October 1, 2017, first-time homebuyers in the District can apply for a recordation tax reduction thanks to the First-time Homebuyer Tax Benefit Amendment Act.
The purpose of the legislation is to ease the tax burden for first-time homebuyers. The recordation tax is a cost you pay to transfer the deed of property from the seller to you. A reduction in this taxation rate can save Millennials and other first-time homebuyers a sizable sum of money.
According to Eric Boutcher, Senior Loan Officer at Atlantic Coast Mortgage, “Homebuyers who qualify may have their recordation tax cut in half. That’s a huge amount of savings.”
The current recordation tax rates are:
The recordation tax rate for eligible first-time homebuyers will lower to 0.725%.
Here’s a quick look at an example of figures:
The standard transfer tax cost for a $500,000 home with the 1.45% rate is $7,250.
However, if you qualify for the 0.725% tax rate, you will pay $3,625 which is a 50% savings.
The DC Office of Tax and Revenue has provided income restrictions for this benefit. The maximum household income limit depends upon the number of individuals that reside in the home.
We’ve broken down the income restrictions in a table for you below:
|Persons in Household||
Household Income Limits
You must be a D.C. resident to qualify for this tax reduction. If not, you must show proof that you will be becoming a D.C. resident immediately.
In addition, a qualifying first-time homebuyer is someone who’s never owned an eligible property in D.C. unless you’ve relinquished ownership of it due to divorce or separation. Another condition to note is the sales price of the home you’re purchasing cannot exceed $625,000.
Contact one of our loan officers if you’re not sure whether you qualify for the tax reduction. We can run through the details with you to determine if you’re an eligible candidate.
The title company processes the recordation tax reduction application. However, your lender can help you put the application together.
Boutcher suggests teaming up with a lender in the D.C. area specifically to analyze your buying power and eligibility. A local lender is likely going to be the most informed about the D.C. legislation. The tax reduction application process includes verifying your household income and providing appropriate settlement or disclosure forms. This is documentation your lender will have and can help you compile for the title company.
If you’re ready to prequalify for a home and are interested in learning more about this tax reduction opportunity, contact us today!