Vent: people who take the DC Homestead Deduction on properities they don't live in

[Anonymous]

So this is an incredibly common practice in DC but it still makes me mad. So many people take the DC Homestead Deduction on properties they do not live in (which is a requirement of the deduction). It's dumb because you actually have to affirmatively tell DC if you move out of a home and start renting it out, and most people just don't bother, so they keep getting the deduction.

It's impossible to say how much lost tax revenue this accounts for in DC, but it's likely not an insignificant sum. And it's just frustrating to see that money going to landlords instead of to the city. Lord knows the city could use it, especially now with revenues down so much due to Covid. And at the same time, landlords have seen massive increases in the value of their properties in the city. It's really gross.

Anyway, if you own a rental property in the district and (illegally!) take the Homestead deduction, you should contact the tax assessor and have it removed because you are stealing money from the city.

/end rant

[Anonymous]

I don't get it: can't the tax people see the deductions and rental income at the same time! Why can't they do it?

[Anonymous]

Anonymous wrote:I don't get it: can't the tax people see the deductions and rental income at the same time! Why can't they do it?

It’s separate tax offices. The homestead deduction is granted by the real property tax office whereas a persons income tax filing is handled in another office.

DC has run audits in the past to address this because it’s so rampant, but not in a while. You can view the property tax assessment and billing history for any DC property online, so whenever we pay our tax bill I will look up bills for homes near us just to compare tax assessment. But that’s also how I know how rampant this is. We have multiple rentals on our block and they ALL still receive the homesteader deduction. One of them, the owner hasn’t lived there for almost 20 years— that’s more than 20k in tax revenue for that house alone!

I’m sure many of not most of these people just don’t know they are still getting the deduction. So partly I’m just annoyed with DC for not enforcing this more clearly, by requiring periodic proof of residency or something. But I also think the landlords have a duty to take care of this. The homestead deduction shows up in bold on your bill. It’s clear what it is. People who just decide to wait until they get in trouble for it annoy me. There should be a penalty of some kind to disincentivized that behavior.

[Anonymous]

I heard years ago that DC was cracking down on this.

But in the meantime, I bet you could report people anonymously.

[Anonymous]

We filed a form to cancel the homestead deduction on our old home as soon as we moved out of it for the three months that we were living in our new one before selling the old one a few years ago. I guess that was unnecessary in retrospect.

[Anonymous]

I imagine this is pretty common lots of places. The previous owner of our MoCo townhouse was claiming it as a residence for tax purposes but I don't think he'd ever lived there. He was definitely renting it before he put it on the market.

[Anonymous]

Agree. It used to drive me crazy when I had to forward my landlord's tax stuff to him in Bethesda.

[Anonymous]

Anonymous wrote:I heard years ago that DC was cracking down on this.

But in the meantime, I bet you could report people anonymously.

I did this to my neighbor, who was not a good neighbor and then moved out and kept the house as a rental. I filed an anonymous complaint and the next time I checked, they no longer claimed it.

[Anonymous]

Many years ago California did something I considered brilliant. They gave renters a $60 credit on their state taxes. They had to list where they lived and from whom they rented. The outcome: all the people that weren’t declaring rental income were caught, and the state received a whole lot more than the $60. credits they gave out. I imagine the same method would work in this situation.

[Anonymous]

How do you know how many people do this?

[Anonymous]

Anonymous wrote:How do you know how many people do this?

Because you can look up peoples property tax bills online and it will say whether they claim the deduction or not. I discovered it years ago when our tax assessment went way up and I wanted to compare to similar homes in the area to see if it was consistent. I happened to look at one that I knew the owner rented out (because I’d known the owner when he lived there), saw he claimed the homestead deduction, and was surprised.

So then I looked at a bunch of rentals in my neighborhood and discovered the MAJORITY still claim the homestead deduction. Like out of maybe 10 I looked at, 7 or 8 claimed it. One had only recently become a rental so maybe there was lag, but the others hadn’t been owner-occupied for years.

It’s just a massive giveaway to people with investment properties that is intended to do the opposite (make it easier for people who live and work in DC to own homes here).

Anyway, you can see for yourself here: https://mytax.dc.gov/_/

Type in an address you know is a rental and look at their last bill. The deduction is listed in bold under the assessment.

[Anonymous]

I thought DC was pretty on top of it because when I called in to asked about my tax returns awhile ago, I was told that I cannot claim the homestead. I never did. I received a first time home-buyers credit which dragged on for years and years, and I did live in it several years after buying. Not sure what the tax office person meant "can't claim taxes or homestead if it's rental", but I got my refund soon after. Instead of saying that they were behind, she claimed to have something wrong with my taxes on the property. That's where I got the idea that they check for homestead. Just not sure where she got the idea that I had one.

[Anonymous]

Anonymous wrote:I thought DC was pretty on top of it because when I called in to asked about my tax returns awhile ago, I was told that I cannot claim the homestead. I never did. I received a first time home-buyers credit which dragged on for years and years, and I did live in it several years after buying. Not sure what the tax office person meant "can't claim taxes or homestead if it's rental", but I got my refund soon after. Instead of saying that they were behind, she claimed to have something wrong with my taxes on the property. That's where I got the idea that they check for homestead. Just not sure where she got the idea that I had one.

I think they go through periods of heavy enforcement and then lay off. Ironically, the reason they don’t enforce this more aggressively is because running property tax audits is pricy. So they don’t staff for it all the time.

They should really come up with a mechanism that would catch violators more cheaply. Like a system that cross referenced taxpayer addresses against real property records so if someone paid income taxes, registered to vote, or got a drivers license at an address other than the one for which they were getting a homestead deduction, it would trigger a targeted audit.

Instead I think they rely on people to do the right thing, which obviously isn’t going to work.

[Anonymous]

I have been trying to get the homestead removed on my rental for almost a year (townhouse I used to live in and no longer do; rented out starting last June). I sent cancellation form before moving out and have called and emailed several times since it still shows up at wrong. Not sure if delay is
Covid related or what but jsut FYI this isn’t always the fault of the party paying the taxes

[Anonymous]

There is a way to anonymously report this, OP. Go to the OTR website.