District residents who live east of the river have the lowest effective real property taxes

District residents who own their homes do not generally pay taxes on the full value of their properties.  If your District property is your primary residence,  the amount you get taxed on will be different from your assessment.  First, you are exempt from taxes on the first $70,400 of your house value (this is called homestead deduction, and it is adjusted every year for inflation).  Second, you are protected from the tax implications of large upswings in home values by the assessment cap. Your taxable assessment, which is what you pay taxes on after the homestead deduction, cannot grow by more than 10 percent each year.  (These two tax relief policies are not unique to the District; more on this will come this week).  The two policies combined reduce the taxable assessments for all District homesteads, but their combined effects vary by home values and neighborhoods. (In addition, seniors with incomes below $127,100 get a 50 percent reduction on their final tax bills).

The homestead deduction is more valuable in low-value houses. Because it is a flat amount ($70,400 this year), the homestead deduction produces a relatively bigger tax break for properties that have lower assessed values.  If the tax office assessed your home’s value at $300,000, you would be taxed on $229,600, or 77 percent of your home’s market value.  If your assessed value were $1.3 million, your would pay taxes on $1.23 million, or 94 percent of your home’s market value.

The 10 percent cap on tax assessments is more valuable in neighborhoods with rapid growth.  Going back to our example, a homestead property of $300,000 would be taxable over $229,600.  At 85 cents for each $100 value, the tax would be $1,951.  Let’s say the assessed value of this property grew by 33 percent to $400,000 in one year.  If there were no caps, the new taxable assessment  would have been $329,600.  The cap, however, limits the taxable assessment growth by 10 percent, thus the owner would only pay taxes over roughly $252,560 ($229,600 times 110 percent).  The cap is removed once the house is sold to a new owner.

Looking at the District residential properties that are eligible for homestead deduction and assessment caps, we find the following:

  • More than half the District properties are eligible for homestead deduction, and potentially, the taxable assessment cap. Of the 178,300 residential properties, approximately 95,876 are homesteads eligible. (This figure is only for properties that are purely residential such as single family homes, row houses, apartments and coops.  It excludes mixed-use developments).
  • Among these homestead properties, the two tax  provisions reduce taxable assessments by about $10 billion, or down 28 percent. In Tax Year 2015, the total assessed value of homestead properties was $53.8 billion; only $44.2 billion of this amount was taxed. In Tax Year 2016, the comparable numbers are $57.3 billion and $47.3 billion (the 2016 data could change since people have a chance to appeal).
  • In the absence of these deductions, the real property taxes would have been $72 million higher every year.  Given the $10 billion difference, the number is indeed lower than the 85-cent rate would bring. This is because seniors, who own 19,200 properties in the District, are eligible for a 50 percent tax reduction.
  • The divergence between full and taxable assessments is greatest among lower valued homes. Among properties assessed below $300,000, the taxable assessments are 65 percent of full assessments–that is, homeowners only pay taxes on 65 cents out of each dollar of assessed value.  Among mid-valued properties (assessed between $300,000 and $750,000), the taxable assessment are 78 percent of full assessments.  Among properties valued over $750,000, the comparable ratio is 92 percent.

Bar Chart

  • Finally, the divergence between full and taxable assessments is greatest in east of the river neighborhoods and in neighborhoods that have been growing rapidly. In the Congress Heights neighborhood, for example, the taxable assessments are only 56 percent of the market assessments.  In neighborhoods where values are growing fast, such as Eckington and Riggs Park, the taxable assessments are at about 67 to 68 percent of market assessments.  In the northwest quadrant, especially west of Rock Creek Park, taxable assessments are closest to market assessments.  This is because the housing values in these neighborhoods are very high, and they grow at much slower rates (3 to 4 percent annually). The 10 percent cap does not bind forever, since taxpayers eventually catch up for previous tax reductions until their taxable assessment is exactly $70,200 lower than their market assessment.  Such is the case in neighborhoods west of the Rock Creek Park.

Here is a map of District’s neighborhoods by the ratio of taxable assessments to market assessments.  Darker colored neighborhoods have market and taxable assessments closer to each other.

Assessments

What exactly is this data? We use current and proposed market and taxable assessment data from District’s real property tax database as extracted on 29th of February this year. The data only covers homestead properties and properties that receive senior tax reduction.  It also only focuses on non-mixed use properties.

District’s residential property assessments grew by 6 percent

Housing in the District of Columbia is expensive.  The U.S. Census tells us that the District had the second highest median housing prices in 2013, after Hawaii.  Listing price data from the online real estate company Trulia for February 2015 also ranks District second highest among states.

Last week, the District’s tax office put in mail the residential property assessments for Tax Year 2016. The aggregated data at the city and neighborhood levels tell us the following:

  • The tax office valued the total housing stock in the District at $105 billion. 2016 assessments are more than six times the 2000 assessments.
  • On average, housing values assessed by the tax office grew by 33 percent annually for the last 16 years. There are many more housing units today in the District, so most of this growth is coming from new development. But some growth is due to the appreciation of the existing housing stock.
  • Between 2015 and 2016, assessed values grew by 6 percent (similar to the growth last year). Growth is still strong, but below its long term average.
  • Assessments increased the most in Old City neighborhoods, which include parts of Adams Morgan, Dupont Circle, Shaw, Capitol Hill, the U-Street Corridor, parts of Chinatown, and parts of Southwest Waterfront.  Total assessments in these two neighborhoods increased by $1.6 billion.  This change accounts for a quarter of the increase in assessed values (and it is mostly due to new housing units).
  • Highest growth in assessments were generally in northeast neighborhoods. Assessment at Riggs Park grew at 16 percent; Trinidad, LeDroid Park, and Eckington assessments grew 12 percent. Neighborhoods that grew over 10 percent (which adds Chillum, Deanwood and Woodridge to the list) added $800 million to assessed valued, accounting for 10 percent of the new growth.

Changes in map

Comparing the residential market value assessments today to those of 2000 show that housing assets are more equally distributed across the city.  In 2000, Georgetown and Chevy Chase–just two neighborhoods–accounted for 15 percent of the assessed market value in the city.  Today, they account for less than 10 percent.  Seven neighborhoods in the west of Rock Creek park, plus Old City and Capitol Hill collectively accounted for half the housing value in 2000. Today, growth in the Old City neighborhoods have balanced out the values in west of the Rock Creek Park.  Southwest Waterfront, Brookland, and Petworth also hold significant value.

Assessment Increase Long

What happened to market assessments in your neighborhood? Use the interactive tool below to see the market assessment changes between 2015 and 2016 in each assessment neighborhood.

Assessment Change bars

What exactly is this data? Tax years 2015 and 2016 data are from District’s Computer-assisted mass appraisal (CAMA) database, aggregated for assessment neighborhoods.  The 2010 assessment data is from the real property tax database for 2001, as it was extracted in March 2001.  2001 and 2016 data are not perfectly comparable since assessment methodology was different, and neighborhood definitions in 2000 were slightly different from the definitions today, but one can draw broad conclusions.  The data presented here are assessed market values. The tax base for the District is related, but different:  the difference between market assessment and taxable assessment is the homestead deduction, but taxable assessments can also be constrained by the 10 percent cap on the annual growth in each property’s taxable assessment.

John Codd at the Office of Tax and Revenue helped with this post. (All errors belong to the author)