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The District of Columbia (DC) has enacted legislation increasing its Real Estate Deed Recordation Tax and the Real Property Transfer Tax on the recordation of certain commercial and mixed-use real estate transfers and security interests.¹ The total combined rate on certain real estate transfers will move from 2.9% to a total combined rate of 5%, effective October 1, 2019 (which would be among the highest of such tax rates in the nation).

DC Mayor Muriel Bowser signed A23-0091/B23-0352, the "Fiscal Year 2020 Budget Support Emergency Act of 2019" into law on July 22, 2019. The emergency legislation is set to expire October 20, 2019. Additionally, DC submitted B23-0209, the "Fiscal Year 2020 Budget Support Act of 2019" to the US Congress for approval. As of the date of this Alert, Bill B23-0209 is projected to become permanent DC law on September 27, 2019, unless Congress rejects the bill.²

DC currently imposes a Real Estate Deed Recordation Tax (DC Deed Tax) at the time a deed, certain leases, or a security interest in real property is submitted for recordation. The rate is 1.45% of the consideration for, or fair market value of, the property.³ In addition to the DC Deed Tax, DC also imposes a Real Property Transfer Tax (DC Transfer Tax) at the time a deed or certain leases are submitted for recordation. The rate is 1.45% of the consideration for, or fair market value of, the property.⁴ Thus, the current total combined rate is 2.9%.

The new DC legislation will impose both an additional DC Deed Tax and an additional DC Transfer Tax each at the rate of 1.05% for recording deeds that transfer property of which any portion is classified as Class 2 (Commercial) property when the consideration for the deed is $2 million or more. The additional tax DC Deed Tax rate also applies to recording security interests that secure $2 million or more in real property where any portion of the property is classified as Class 2 (Commercial).

The result of these tax law changes is a 2.5% DC Deed Tax and a 2.5% DC Transfer Tax on transfers of real property for a combined 5% rate applicable to transfers of commercial or mixed-use real property which are transferred by recorded deed.⁵ This increased tax rate to 5% also applies to the transfer of an economic interest in real property.

Implications

Please contact EY to discuss any current or planned sales or transfers of real property located in DC, or transactions involving entities that directly or indirectly own real property located in DC.

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ENDNOTES

¹ Only the Real Estate Deed Recordation Tax applies to security interests in real property. The Real Property Transfer Tax does not apply to security interests.

² The legislative process in DC is unique. DC laws adopted by the City Council intended to be permanent must also be approved by Congress, which includes a 30-day in-session review period. Given the amount of time it takes to enact law on a permanent basis, DC commonly enacts multiple bills with the same or substantially similar language. One of the bills is meant for the complete permanent legislative process, and another bill is enacted on an emergency basis — effective for 90 days once the Mayor has signed it.

³ D.C. Code Ann. § 42-1103(a). Part of the rate (0.35% of the rate) does not apply to instruments recorded for residential real property with consideration less than $400,000.

⁴ D.C. Code Ann. § 47-903. Part of the rate (0.35% of the rate) does not apply to instruments recorded for residential real property with consideration less than $400,000.

⁵ The DC Deed Tax on security instruments secured by commercial or mixed-use real property is increased from 1.45% to 2.5%.