News

New Recordation/Transfer Tax Rate Increase on Commercial Properties and Comments to Revised Form FP-7/C

DCLTA Board members recently attended a joint meeting with AOBA (Apartment and Office Building Association of Metropolitan Washington), D.C.Recorder of Deeds Ida Williams, and Robert McKeon (Deputy Chief Counsel with OTR). The topic was the recently enacted Recordation and Transfer Taxes Amendment Act of 2019, which increases the recordation and transfer taxes applicable to commercial properties in the District of Columbia.

 Background and Meeting Discussion

 As you may know, newly increased recordation and transfer tax rates will be applied to deeds and deeds of trust on Class 2 commercial properties starting October 1, 2019. The new law will increase the combined effective rate from 2.9% to 5% on transactions valued over $2 million. The new5% rate will also be applicable to economic interest transfers valued over $2 million. (For the enacted legislation, see the Fiscal Year 2020 Budget Support Act of 2019, Title VII, Subtitle C [beginning on p. 95] Bill #B23-0209,Act #A23-0092.)

The purpose of the meeting was to discuss the practical implementation of the new law, in particular its applicability to mixed-use buildings or to lots contained within mixed-use buildings. This may include apartment buildings listed as Class 3 but which contain a commercial component. OTR stated that the new tax rates would apply to any non-homestead property with a consideration of $2 million or more if any portion of the building in which the lot being conveyed or secured is located contains a commercial component. The basis for making this determination will be the certificate of occupancies for the building. We will continue to seek clarification on the applicability of the new rates to mixed-use Class 3 properties.

Many mixed-use buildings contain both commercial and non-commercial components, often under separate ownership. OTR has advised that increased tax rates may not be applicable to the non-commercial components under this circumstance. Provided there is no direct or indirect common ownership between the grantor and the owner of the commercial component in the building, a claim for exemption may be made on the FP-7/C accompanying the deed or deed of trust. The Recorder of Deeds will then verify the non-common ownership by looking to the OTR Assessment Database and a sworn statement by the grantor in the FP-7/C.

OTR has also advised that buildings with former commercial components, in which the commercial use was discontinued before the sale or encumbrance of the property, will be taxed based upon the current certificates of occupancy.

In addition, please note that ROD will likely look to the date of a document’s acknowledgement to determine whether it is subject to the new rates. We are seeking clarification of this requirement.

Where We Need Your Help

 The new tax rates require a revision to the FP-7/C. We would like your help in commenting on the new form proposed by the Recorder of Deeds. The draft FP-7/C and draft FP-7/C instructions are attached for your review.

DC_Draft FP7C Instructions.pdf

DC_FP7C_DRAFT_10-2019.pdf

Please review these forms ASAP and submit comments/questions to DCLTA at exec@dclta.comso that we can clarify any issues and continue our discussion with OTR.

 We would appreciate any responses you may have by the close of business on Monday, August 5.

We are committed to providing you with the latest information we have on the new tax rates and any conversations we have with OTR. However, the recent tax rate changes are new and complex. This communication is provided for your convenience only and should not be construed as legal or underwriting advice. For more information, please contact your legal counsel or underwriter with any questions you may have about the tax law change and its applicability.

Thank you,

DCLTA Board of Directors

exec@dclta.com