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Property Tax Resources

Nov
27

DC in Denial on Office Property Valuations

Property tax assessors in nation's capital city ignore post-COVID freefall in office pricing, asset values.

Commercial property owners in the District of Columbia are crawling out of a post-pandemic fog and into a new, harsh reality where office building values have plummeted, but property tax assessments remain perplexingly high.

Realization comes slowly

Immediately following the pandemic, many office property owners adopted a wait-and-see attitude toward the volatility permeating the sector, clinging to hopes that the rising popularity of remote work and similar office worker practices would prove temporary. Once the Federal Reserve began raising interest rates to combat generational inflation in 2022, however, hopes for a "return to normal" vanished and a grim reality set in.

Recent transactions involving office properties in the District clearly indicate that investors recognize the negative impact these market forces have exerted on office building valuations and are now pricing those changes into the amounts they are willing to bid for acquisitions. These recent sales show office building values have declined by more than 50 percent from pre-pandemic levels.

The other shoe began to drop on office market pricing in early 2023 with a rise in distress transactions, in which the office owner sells or forfeits the property to resolve some form of trouble, typically financial. These turnovers in ownership have continued to increase and now exert a growing influence on office pricing and valuations. Although properties have continued to transfer by traditional, arm's length transactions, the occurrence of foreclosures, deed-in-lieu arrangements, and lender takebacks is increasing. The proliferation of these non-standard transfer mechanisms is irrefutable and has a direct effect on the overall office market.

Denying reality

So, how has the District of Columbia adjusted its methodology to properly value office assets in this new and more challenging environment? In short, it hasn't.

A quick look at the 2025 tax year's assessment values (valued as of Jan. 1, 2024) shows the District largely ignored any change to the market. Among properties that traded in 2023 and 2024, the District's assessment-to-sale-price ratio is close to 200 percent! In other words, the District's methodology is producing assessments that are twice the values those properties are trading for.

This divergence from market evidence is perplexing, given that District of Columbia Courts have ruled that a recent purchase price provides the best indication of a property's value. In its 1992 decision in Levy vs. District of Columbia, the D.C. Superior Court observed that "a recent arms-length sale of the property is evidence of the 'highest rank' to determine the true value of the property at that time."

How does the District get around this decision when valuing office properties today? By ignoring any sales that it finds inconvenient and disqualifying them from inclusion in its assessment model.

Setting aside the impropriety of disqualifying these marketed, arm's-length transactions, the District has also excluded distressed transfers from its model. These exchanges of property, which may involve a lender's sale of real estate obtained through foreclosure, may not involve a sale between a conventional buyer and seller but they nevertheless establish value for the transferred real estate.

When non-standard transfers have become standard, as they have in the post-pandemic office market, assessors should include these transfers in their valuation models. That's according to the International Association of Assessing Officers (IAAO), which provides guidance on the topic in its Standards on Verification and Adjustment of Sales (2020 edition).

The publication states that when non-standard sales become more common, sales "in which a financial institution is the seller typically should be considered as potentially valid for model calibration and ratio studies if they account for more than 20 percent of sales in a specific market area."

The IAAO's Standards echo this qualification when addressing short sales. In that section, the IAAO states, "these sales should be treated like other foreclosure-related sales and considered for model calibration and ratio studies when, in combination with other foreclosure-related sales, they represent more than 20 percent of all sales in the market area, but only after a thorough verification process for each sale."

This 20 percent threshold is the IAAO's acknowledgement that when the market evolves, mass appraisal models must reflect the market's change. That means the District of Columbia can no longer ignore distressed transfers and should recalibrate the mass appraisal model used to value commercial properties in the District to include these types of transactions.

Despite these non-standard transfers representing well over 20 percent of DC's office market, the District has failed to adjust its model in accordance with IAAO guidance. As a result, assessors overwhelmingly base assessments on years-old data that does not reflect current market conditions.

Next steps

Moving forward, the most effective avenue for change will be aggressive advocacy by office market participants. Owners of commercial properties in the District must continue to engage with elected officials and actively appeal their assessments.

Fortunately, independent third parties administer the Real Property Tax Appeals Commission and D.C. Superior Court – two of the three levels of real property tax appeals in the District. If the District is unable or unwilling to change with times, the tax appeal process gives taxpayers the opportunity to force its hand.

Sydney Bardouil is an associate at the law firm Wilkes Artis, the Washington D.C. member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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May
19

Office-to-Residential Conversions Present Costly Problems

Developers should understand the property tax implications before attempting to repurpose buildings in downtown Washington, D.C.

With office vacancy rates in the District of Columbia at 20% and climbing, officials believe that converting office buildings to residential space is an important component of revitalizing Downtown Washington.

These complex projects pose both practical and administerial challenges, however. For developers, one important consideration of such a redevelopment is its real estate tax implications.

High hopes

District leaders announced earlier this year that they hope to add 15,000 residents to the central business district over the next five years – an ambitious goal. The hope is that bringing residents to live downtown will create a more vibrant neighborhood where people live, work, and dine.

The stark reality is that the District of Columbia has one of the lowest return-to-office rates in the country. Actual occupancy in the D.C. metro was only 43% in mid-April and drops below 25% on Fridays, according to Kastle Systems, which tracks office occupancy. Workers simply aren't returning to Downtown D.C.

While residential conversions may be one piece of the puzzle in addressing D.C.'s downtown woes, converting an office building into a residential property is no small feat. Here are a few important factors relating to real estate taxes to keep in mind when considering an office-to-residential conversion.

Real property tax rates

Real property tax rates in the District vary considerably from residential to commercial real estate. Residential properties, including multifamily apartment buildings, are taxed at a 0.85% rate. The commercial tax rate, which is used for office buildings, is more than double that rate at 1.89% for properties assessed over $10 million.

To the extent a property contains both residential and commercial space, D.C. will apply a mixed-use tax rate based on the pro-rata allocation of residential versus commercial space. Consequently, how the District classifies a property can have an immense impact on tax liability and carrying costs.

Timing of reclassification

A costly misstep would be to assume that the tax rate will immediately change from 1.89% to 0.85% after an office property is acquired for residential conversion. In fact, if there is any commercial use continuing at the building, the commercial tax rate will still apply.

Moreover, the District historically has been inconsistent in its application of when a building should "convert" from commercial to residential for purposes of tax classification. Although the D.C. Code provides a property should be reclassified when there is no current use and the property's highest-and-best use is residential, some assessors have taken a more aggressive approach and argued that the property should not be reclassified until the redevelopment is more than 65% complete.

Property acquisition

An additional hurdle lies in the acquisition process itself. When an office building is acquired for a residential conversion, higher transfer and recordation taxes apply. For commercial and mixed-use properties, the transfer and recordation taxes are 5% of the sale, as opposed to 2.9% for a purely residential building.

The mayor's proposed 2024 budget would allow the higher transfer and recordation tax rate to expire later this year, but the D.C. Council had not adopted the measure at the time of this writing and may or may not allow the higher rate to sunset. Under the current code, there is no exception for the acquisition of an office property that is being purchased for purposes of a residential conversion.

Abatements

Finally, in an effort to spur redevelopment, the mayor has announced her intention to offer tax abatements for office-to-residential conversions that meet certain criteria. At this point, it is difficult to determine the financial implications of the tax abatement program for a specific redevelopment because there is no set formula for deriving the amount of an abatement.

What is known, however, is that there are specific requirements to qualify for the abatements. Among other conditions, these include:

  • Affordability. 15% of the housing units must be affordable.
  • Location. The redevelopment must be within a specific geographic area.
  • Designated contractors. 35% of the construction contract must go to specific business enterprises that have been certified by the District.

These requirements further complicate the already challenging task of successfully executing an office-to-residential conversion.

In short, the real estate tax implications of an office-to-residential redevelopment are highly dependent on the unique facts and circumstances of each case, and the varying tax rates can have huge implications for a property's development budget. A developer considering such a conversion should contact experienced counsel early in the process.

Jonathan L. Cloar is a partner at the Washington D.C. law firm Wilkes Artis, the Washington D.C. member of American Property Tax Counsel, the national affiliation of property tax attorneys. Sydney Bardouil is an associate at the firm.
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Mar
16

The Tax Appeal Life Cycle

District of Columbia taxpayers can appeal assessed property valuations through three levels of review.

In the District of Columbia, a prudent taxpayer must observe important steps and deadlines to appeal a real property tax assessment. Strict code provisions, government policies and procedures govern the appeal process, so understanding the typical lifecycle of an appeal provides a head start in making sure a property is fairly assessed.
Here is a look at what to expect as a case advances:

Assessment and notification
Assessors reassess all real property in the District each year using a Jan. 1 valuation date that precedes the start of that tax year. For example, Tax Year 2023 runs from Oct. 1, 2022 through Sept. 30, 2023. Thus, corresponding assessed values are as of Jan. 1, 2022.

The District typically will mail assessment values and update the MyTaxDC.gov website on or around March 1 each year, sending its estimate of market value to the owners of more than 205,500 parcels. This will be the taxpayer's first glimpse of the valuation and potential tax liability for the following tax year.

These assessed values are released without supporting documentation, however.

To determine how an assessor derived the value, the taxpayer or a duly authorized agent must contact the Office of Tax and Revenue to request a copy of the assessor's workpapers. These documents will be critical in formulating the basis for any possible appeal.

1.) Office of Tax and Revenue
The first-level tax appeal deadline is April 1. While the property owner may not have all the relevant documents they need to properly analyze their assessment by this time, the taxpayer must meet the filing deadline or waive their right to any further appeal for the tax year.

Fortunately, the first-level petition is a one-page form completed online and requires only basic property information to satisfy the requirement. Continuing with a first-level appeal, however, demands further analysis.

The assessor may use one of the three common approaches to derive a proposed value — the income, cost and/or sales comparison approach — or any other approach that can be supported. For large commercial properties, the most common practice is to use the income approach in conjunction with the District's mass-appraisal model.

Mass appraisal uses market assumptions based on property type, submarket and classification. These assumptions derive from taxpayer-submitted income and expense reports (I&E) for the previous tax year. The assessor derives the property's net operating income using market assumptions and divides the result by a market capitalization rate loaded with the applicable tax rate. Or, in the case of retail properties, the assessor uses a net lease rate and an unloaded capitalization rate to arrive at taxable value.

Consequently, the yearly filing of income and expense reports is an integral part of the assessment process and is mandatory for most owners of income-producing properties. At the beginning of each calendar year, the District issues its notice of income and expense report filing requirements, along with unique access and submission codes for taxpayers to report their sensitive financial information using an online portal.

This portal opens in January, giving taxpayers adequate time to comply with the I&E submission deadline, which is on or about April 15 each year. (Due to a holiday, Tax Year 2023 I&Es are due Monday, April 18, 2022.) Timely compliance with this requirement is imperative, as failure may result in a 10 percent penalty on the subsequent tax year's liability. A local tax advisor can be a great help with this complicated process.

Once complete, and when applicable, the I&E will be a vital component to the analysis and validity of a tax appeal. If the taxpayer believes an appeal is warranted, they can move to a first-level hearing. This administrative appeal to the assessor of record generally occurs in May or June. The assessor reviews information the taxpayer provides and can adjust the value by first-level decision.

2.) Appeals Commission
If the initial appeal does not provide a satisfactory result, property owners may continue to the next administrative level. The taxpayer must initiate an appeal to the Real Property Tax Appeals Commission (RPTAC) within 45 days of the first-level decision or forfeit additional appeal rights.

Filing a petition with RPTAC requires the taxpayer to produce specific information such as property and financial data as well as supporting evidence to prove the current assessment is incorrect.

In other words, the assessment is presumed correct unless and until the taxpayer proves otherwise. RPTAC hearings generally occur between early October and the end of January. Hearings before a panel of two or three commissioners allow both parties to argue their positions and to answer commissioners' questions. The Commission should issue its decisions by Feb. 1 of the relevant tax.

3.) D.C. Superior Court
The District issues real property tax bills in March and September of the relevant tax year. This means, barring extraordinary disruptions that can include global pandemics, administrative appeals should be completed prior to the issuance of these bills.

If an administrative appeal does not achieve a result the taxpayer believes is fair, a further appeal to D.C. Superior Court is available.

To appeal to the Superior Court, the taxpayer must first pay all taxes in full and file a petition by Sept. 30 of the related tax year.
The proceeding will ostensibly become a "refund" lawsuit and may take several years to reach a resolution. However, if successful, taxing entities will be required to provide an additional 6 percent interest with any refund amount.

Importantly, any tax representative must be an active member of the D.C. Bar Association to handle this stage of appeal, which is a court proceeding. Therefore, to maximize the effectiveness of a tax appeal, a local tax attorney is best situated to guide a taxpayer through the life cycle of a property tax appeal.

Sydney Bardouil is an associate at the law firm Wilkes Artis, the District of Columbia member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Apr
14

Unwelcome Property Tax Surprises in D.C.

Insights into managing real property tax liabilities in the nation's capital.

After the tumult and disruptions of 2020, the last thing taxpayers need is another surprise. Our society craves predictability more than ever before, and commercial real estate owners want predictability in their property taxes. 

In the District of Columbia, commercial real estate owners keen to make their future expenses more predictable can start by familiarizing themselves with the full gamut of real property liabilities. In addition to the standard annual property tax, the District imposes a variety of charges on real estate that vary by the property's location, use and payment history. 

Managing these real estate charges can help a taxpayer budget for upcoming expenses and minimize the risk of incurring unplanned costs. What follows is a primer to help taxpayers manage real property tax liabilities in the District: 

Start with the basics 

The DC Office of Tax and Revenue (OTR) recently launched MyTax. DC.gov, a new taxpayer website intended to streamline the tax assessment and billing processes. This single portal offers insight into taxes on individual income, businesses and real property, as well as fees administered by OTR. 

The site features self-service tools that enable taxpayers to review and pay property tax bills online, view assessment histories, apply for tax relief benefits, request mailing address changes and submit mixed-use declarations, among other features. While this centralized system should help to organize the billing and payment processes, it offers little information about the District's fees and may leave owners still wondering: What are these charges? 

The BID tax 

Many commercial property owners in the District incur a business improvement district (BID) tax. The District defines a business improvement district as "a self-taxing district established by property owners to enhance the economic vitality of a specific commercial area." Each of the District's 11 BIDs assess a surcharge to the real property tax liability, which the District collects and then returns to the BID. Each BID dictates how it spends its funds, typically supporting the community with programs promoting cleanliness, maintenance, safety and economic development. 

The DC Code establishes BIDs and their geographic boundaries. These provisions empower each BID to establish its tax rates. How those taxes are calculated varies by BID. For example, an individual district may base its tax on the number of rooms in a hotel, a building's square footage and a percentage of the tax assessment value. Thankfully, these organizations often have robust, informative websites that can be useful resources for property owners. 

As with real property taxes, a property owner that fails to pay its BID tax on time and in full can incur penalties and interest charges on its tax account. Therefore, mismanaging a property's BID tax can lead to pricey consequences. 

Public space or vault rent 

To optimize the operation of an asset, many property owners rent-adjacent, District-owned space known as "public space." The District categorizes these offerings as either "vault space," which is below ground level; or above-ground "café space." Examples include outdoor café space, above or below-grade parking and areas for storage of utilities. 

The formula for calculating vault rent is Land Rate x Vault Area x Vault Rate. Therefore, changes in a property's taxable land assessment value will result in a change in the rental charge for associated public space. Unlike BID taxes, public-space rent is charged to the renter as a separate bill. This requires extra attention to avoid those pesky penalty and interest charges. 

Special assessments 

A variety of supplementary special assessments may arise to fund city-wide projects. Examples of these charges include a ballpark fee, Southeast Water and Sewer Improvement fee and the New York Avenue fee. The levy of these assessments is governed by specific criteria set forth in the related DC Code provision. 

Given the often-complex nature of the code, taxpayers may choose to consult a tax or legal professional to help navigate these less-common levies. 

Credits 

A credit on a property owner's tax account will likely come as a welcomed surprise, but the taxpayer should give these circumstances the same scrutiny they would give to unexpected charges. Understand that a credit is not free money, nor is it always an accurate designation. 

If a credit appears on the account, it will likely stem from a prior overpayment. This may reflect a reduction in tax liability that occurred after a bill was issued. Other possible causes include a DC Superior Court Refund Order, a dual payment from a third-party vendor or a prepayment of the full year tax liability on a first-half tax bill. 

Before enjoying the benefit of the lowered tax liability, it is important to verify this credit is justified. If the credit was wrongfully applied, a taxpayer will still be liable for the remaining balance. The District may issue a corrected bill for the outstanding amount, or the balance may appear on a future tax bill. A failure to remedy this balance can once again lead to penalty and interest charges. 

Penalties and interest 

The most unwanted surprise charges are penalties and interest. These charges can arise under several circumstances such as when the taxpayer has failed to file a yearly income and expense form with the District, or after missed, late or incomplete payments. 

Penalties and interest can cause a headache for taxpayers. The District will apply any future payment to penalties and interest before the account's principal balance. Therefore, it is easy for a small charge to cause a cascading liability if it is not timely addressed. In addition, while a taxpayer may petition for these charges to be waived, this process is often lengthy and the issuance of such a waiver is at the sole discretion of the OTR. 

The prospect of navigating these charges may seem overwhelming but it is a vital part of owning and managing real estate in the District. Therefore, it is best to learn the tax rules or consult with a local tax attorney who has experience dealing with these issues, as well as with the corresponding governmental entities. A knowledgeable expert can sort through this complicated web of liabilities, penalties and errors.

Sydney Bardouil is an associate at the law firm, Wilkes Artis, the District of Columbia member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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Jun
09

Navigating D.C.’s Tax Rate Maze

An evolving and imperfect system has increased property taxes for many commercial real estate owners.

If you own or manage real property in the District of Columbia and are wondering why your real estate tax bill has gone up in recent years, you are not alone. One common culprit is rising assessed value, but that may not be the main or only source of an increase.

A less obvious contributor may be a new, different, or incorrect tax rate. Since tax rates vary greatly depending on a property's use, staying diligent when it comes to your real estate's tax class and billed rate is critical.

The District of Columbia applies differing tax rates to residential, commercial, mixed-use, vacant and blighted properties. Why is this important? Because the classification can make a considerable difference in annual tax liability – even for two properties with identical assessment values.

For example, a multifamily complex assessed at $20 million incurs a tax liability of $170,000 per year while the same property, if designated as blighted, incurs an annual tax liability almost twelve times greater at $2 million. Therefore, the assessed value is just one piece of the puzzle.

Keeping a sharp eye on a property's tax bill for the accuracy of any tax rate changes is paramount. This requires knowledge of current rates, the taxpayers' legal obligations, and how to remedy or appeal any issues that arise.

New Rates for Commercial Property

Property owners in the District should be aware of a recent change to tax rates on commercial real estate. The Fiscal 2019 Budget Support Emergency Act increased rates for commercial properties starting with Tax Year 2019 bills.

Prior to the enactment of this legislation, the District taxed commercial properties with a blended rate of 1.65% for the first $3 million in assessed value and 1.85% for every dollar above $3 million. The new measure replaces the blended rate with a tiered system, taxing a commercial property at the rate corresponding to the level in which its assessed value falls. Those levels are:

Tier One, for properties assessed at $0 to $5 million, taxed entirely at 1.65%;

Tier Two, for properties assessed at $5 million to $10 million, taxed entirely at 1.77%; and

Tier Three, for properties assessed above $10 million, taxed entirely at 1.89%.

The residential tax rate for multifamily properties remained flat at 0.85%.

Mixed Use

The District of Columbia Code requires that real property be classified and taxed based upon use. Therefore, if a property has multiple uses, taxing entities must apply tax rates proportionally to the square footage of each use. However, it is ownership's legal obligation to annually report the property's uses by filing a Declaration of Mixed-Use form. Owners of properties with both residential and commercial portions should be hypersensitive to this issue.

The District typically mails the Declaration of Mixed-Use form to property owners in May, and the response is due 30 days thereafter. If the District fails to send a form to an owner, it is the owner's responsibility to request one. Remember, the owner must recertify the mixed-use asset each year. Failure to declare a property as mixed-use may result in the entire property including the residential portion being taxed at the commercial tax rate (up to 1.89%).

Vacant & Blighted Designation

If you have ever opened a property tax bill and faced a staggering 5% or 10% tax rate, congratulations, your property was taxed at one of the District's highest real estate tax rates.

Each year the Department of Consumer and Regulatory Affairs (DCRA) and the Office of Tax and Revenue are charged with identifying and taxing vacant and blighted properties in the District. The D.C. Code defines vacant and blighted properties for this purpose, and there is a detailed process governing why and when DCRA may classify a property as vacant. Nonetheless, in each tax cycle DCRA wrongfully designates properties as vacant or blighted, so it is paramount that the taxpayer understands their appeal rights.

To successfully appeal a vacant property designation, an owner must comply with one of the specifically enumerated and highly technical exemptions. One such exemption applies if the property is actively undergoing renovation under a valid building permit. However, the taxpayer should consult with an attorney, as there may be other requirements to qualify for an exemption. An owner wishing to appeal this designation must file a Vacant Building Response form and provide all applicable supporting documentation to DCRA.

Moreover, an owner may appeal a property's blighted designation by demonstrating that the property is occupied or that it is not blighted. Since an appeal of a blighted designation requires a more detailed review of the condition of the property itself, photographic evidence must be used to supplement any documentation provided.

Fixing Erroneous Rates

When dealing with local government and statutory deadlines, time is not on the taxpayer's side. It is important that as soon as an error is identified, the property owner understands the next steps. In some situations, the D.C. code or official government correspondence will lay out the process precisely for the property owner, identifying the who, what, where, when, why and how's of appealing a property's tax designation. However, sometimes a taxpayer will receive a bill without explanation.

In both scenarios, it is best to consult with a local tax attorney.  These professionals have experience dealing with these issues, as well as with the corresponding governmental entities.  A knowledgeable counselor can be an invaluable resource to guide you through any tax issue.

Sydney Bardouil is an associate at the law firm of Wilkes Artis, the District of Columbia member of American Property Tax Counsel, the national affiliation of property tax attorneys.
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