This week, the DC Council voted on the revised Fiscal Year 2025 Local Budget,[1] reversing some budget and program cuts proposed in Mayor Bowser’s budget proposal.[2] To make up for fiscal gaps, the Council is raising some taxes, including a real property tax increase for residential properties assessed at above $2.5 million. The so-called “mansion tax” would separate class 1 properties into classes 1a and 1b. Properties assessed above $2.5 million would be deemed class 1b and would be subject to a $1.00 tax per every $100 of assessed value above $2.5 million, compared to the current $0.85. The tax increase would generate an additional $5.7 million in revenue for fiscal year 2025 and $23.7 over the course of the financial plan.[3]
Due to wealth distribution within the District, the tax revenue would be driven by a small subset of neighborhoods, primarily in the Northwest. Of the District’s 74 neighborhoods recognized in the appraisal guidelines, less than half, or 31 contain at least one property valued above $2.5 million. Georgetown is home to the most properties assessed above $2.5 million, at 515 properties, or 20 percent of its total properties. Of all neighborhoods in the District, Massachusetts Avenue Heights has the highest percentage of properties assessed above $2.5 million, with 50.7 percent of all properties in the neighborhood falling into that category. Over 50 percent of the estimated increase in tax revenue will come from three neighborhoods: Georgetown, Kalorama, and Massachusetts Avenue Heights.
Property taxes on high value residential properties are a tool to increase city tax revenue while only impacting a small portion of the population. Approximately 2,800 properties in the District would fall under the proposed tax, prior to exemptions and adjustments, or about 2 percent of all properties characterized as single-family homes including condominiums. The tax has been discussed in D.C. periodically in recent history; in 2019, DC Council debated a bill that would levy a $1.25 tax for every $100 above $1.5 million and below $5 million on residential properties.[4] More recently, the Tax Revision Commission explored options for a high value home tax with a rate of $1.20 for every $100 of assessed value above $2 million.[5]
While a utopic tax policy expands the tax base and lowers the rate, the proposed property tax hits a sweet spot for political viability. It impacts a small share of homeowners in the District and raises notable revenue to fill budget gaps.
[1] Bill 25-784, the Fiscal Year 2025 Budget Support Act of 2024. Bill 25-784, the “Fiscal Year 2025 Budget Support Act of 2024”
[2] FY2025 Proposed Budget and Financial Plan. https://www.dccouncilbudget.com/fy-2025-budget
[3] Report on Bill 25-784, the “Fiscal Year 2025 Budget Support Act of 2024.” https://lims.dccouncil.gov/Hearings/hearings/435
[4] B23-0299 – Residential Real Property Taxes Equitable Alignment Act of 2019. https://lims.dccouncil.gov/Legislation/B23-0299
[5] D.C. Tax Revision Commission Chairman’s Mark. https://assets-global.website-files.com/63bc270f792ad26d64988e32/65a0073781885c05b3c65bf2_Chairman%27s%20Mark%20letter.pdf