D.C. Council Approves Increase in Transfer, Recordation Taxes
On May 28, 2019, the Council of the District of Columbia unanimously approved Mayor Muriel Bowser’s $15.5 billion budget for the next fiscal year, which includes an increase of transfer and recordation taxes from the current 2.9% to 5% on sales of commercial and mixed-use property valued over $2 million. D.C.’s next fiscal year (FY 2020) begins on October 1, 2019, which is when the increase in recordation and transfer taxes will take effect, subject to a passive 30-day congressional review for the local portion of the annual budget and the inclusion of the federal portion of the annual budget in a federal appropriations act approved by Congress.
For transfers of property valued over $400,000 and up to $2 million, deed transfer (1.45%) and recordation (1.45%) taxes in Washington will continue to total 2.9% of the purchase price or fair market value of the property. Transfer and recordation taxes are customarily split equally between the buyer and seller. As of October 1, for sales of commercial and mixed use property valued over $2 million, each party will pay a tax of 2.5% of the purchase price or fair market value of the property at closing. This would result in a $2.1 million increase in transfer and recordation taxes that would need to be paid upon the purchase or sale of a $100 million commercial or mixed-use property, with the buyer and seller each paying $1.05 million more than would have previously been due.
In Washington, the transfer of an economic interest in property (e.g., more than 50% of the controlling interest of the property owner is transferred) also triggers transfer and recordation taxes (even if in a series of transfers of less than 50%, resulting in a transfer of more than 50% in a 12-month period). Beginning on October 1, the transfer of an economic interest in commercial and mixed-use property valued over $2 million will also be subject to the transfer and recordation tax increase to 5%.
As of October 1, the recordation tax on Washington, D.C., deeds of trust over $2 million will increase from 1.45% to 2.5%. A purchase money mortgage or deed of trust that is recorded simultaneously with the deed conveying the property for which the purchase money mortgage or deed of trust was obtained is exempt from recordation tax to record the deed of trust. Beginning October 1, if a buyer/borrower closes on a loan subsequent to closing on the purchase of the property, then the loan transaction will be subject to a 2.5% recordation tax when the deed of trust is recorded.
The increase in transfer and recordation taxes will sunset in 2023, unless extended by the D.C. Council.
Stroock’s national Real Estate Group is tracking these and other developments closely, and we are available to address any of your concerns.
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This article is for general information purposes only. It is not intended as legal advice, and you should not consider it as such.