DC’s normal residential property tax rate is low, but the District taxes vacant and blighted buildings at many times that rate to push owners to fix and occupy them. For an investor holding an empty rowhouse during a renovation, or between tenants, the difference can be large.
The rates
| Class | Applies to | Rate per $100 of assessed value |
|---|---|---|
| Class 1 | Residential property, including rentals | $0.85 (with a higher $1.00 rate on value above $2.558 million for one- and two-unit homes) |
| Class 2 | Commercial and industrial property | $1.65 to $1.89, depending on value |
| Class 3 | Vacant property | $5.00 |
| Class 4 | Blighted property | $10.00 |
What the difference looks like
| Class 1 residential | Class 3 vacant | |
|---|---|---|
| Assessed value | $600,000 | $600,000 |
| Annual tax | $5,100 | $30,000 |
| For six months | about $2,550 | about $15,000 |
When a property must be registered
A residential property left unoccupied for 90 days or more must be registered with the Department of Buildings, for a fee. Failing to register can bring fines of $1,000, $2,500 and $5,000 a year per offense, on top of the higher tax.
Exemptions investors use
- Under construction. A property under active renovation can be exempt, supported by building permit numbers issued within the last 12 months.
- For sale or rent. A property actively marketed for sale or rent can be exempt, with listing documentation.
- How long. Exemptions run from half a tax year to two tax years, are reviewed annually and can be withdrawn. They cannot exceed five years in any 12-year period.
How to protect a flip
- Pull permits promptly after closing and keep them active.
- Apply for the construction exemption rather than assuming it applies.
- List the property as soon as the work is done, and keep the listing documentation.
- Build the risk of a higher tax bill into your holding costs.
Common questions
Vacant property is taxed in Class 3 at $5.00 per $100 of assessed value, and blighted property in Class 4 at $10.00, compared with $0.85 for residential property.
It can, once it has been unoccupied for 90 days. A property under active construction with permits issued in the last 12 months can qualify for an exemption if you apply for it.
See how a renovation is financed on the fix and flip loans page.