News

Update on Recordation Tax and First-Time Homebuyers

October 1 Implementation and Possible Corrective Legislation

We previously let you know about the recently enacted First Time Homebuyer Tax Benefit Amendment Act of 2015 and the accompanying Application Form required by the D.C. Recorder of Deeds, which is available at https://otr.cfo.dc.gov/node/1272871.

The DCLTA Board has been advocating for legislative clarity through the tireless efforts of Roy Kaufmann, Esq. of Jackson & Campbell, P.C. While the current bill will go into effect on October 1, 2017, there will likely be corrective, emergency legislation that may pass within a few days. The goal is for this legislation to be retroactive to October 1.

What does this mean for you right now?

  • If you have a recording to be submitted early next week before the D.C. Council may pass the emergency legislation, use the Application Form online provided at the link above. Fill it out as best you can.
  • For condos with parking spaces or homes with side lots, you or the buyer may need to estimate an allocated purchase price between the unit and parking space or between the two lots if these values were not contractually established.
  • Include tax returns of the grantees (and household members), recent pay stubs, a copy of the homestead exemption application (to show the residency requirement), and a copy of the Settlement Statement or Closing Disclosure (to show that the property is eligible).

What might the corrective legislation achieve?

We are working with the D.C. Council to try to provide clarity on the applicability of the Act and procedures for its implementation. It is likely that the corrective legislation will address the following concerns and accomplish these goals:

  • Reduce the application form drastically (eliminate the worksheet and ask for a repetition of the numbers on the applicant’s IRS form 1040).
  • Clearly state that the consideration for a condo and parking space (or house with side lot) is a single “property” eligible for the reduction (no more price allocation between a unit and a parking space).
  • Include co-ops.
  • Reduce all paperwork to include just:
    • The Application with (a) a self-certification of residency and (b) self-certification that person is a first-time buyer.
    • Copies of tax return(s).
    • Copy of Settlement Statement or Closing Disclosure (to show that grantee paid the recordation tax and not some other payor).
    • Copy of Homestead Application signed by buyer.
  • The “review” by ROD will likely be:
    • Simpler – just to ensure that the docs listed above are included and that the collective income of all members of the household (excluding tenants) AND grantees (i.e. if a parent is applying) come under the income limit by looking at tax returns. Please note that, in this legislation, the parent’s income is included, as opposed to the Lower Income Abatement Program.
    • As quick as the current review process.
  • Because the review is so limited, the likelihood of rejection is very slim. Settlement companies may decide to forego collecting the higher amount of recordation tax in light of this small likelihood.  If there is a rejection, you would need to redo the Closing Disclosure to reflect the higher amount.
  • After the recordation, there may be more documentation requested in an audit.
  • If it is later determined that the reduction was improperly taken, the arrearage will be an in personam obligation of the grantees and not an assessment of recordation taxes; hence, not a title insurance issue.