The Wacky World of DC Property Taxes

Mari of In Shaw did a post about property taxes a few days ago that got me going. Rather than clutter up her blog with long rant of a comment, I’m going to do a post of my own on a subject that drives me nuts.

Here’s the thing: DC tax assessments are totally capricious and make a complete mockery of the principle of equal taxation based on actual property value. Within any given block in this city, you can find at least a dozen examples of absurd valuations, and the city has in effect created two classes of tax payers: those who bought their property before the price bomb went off (roughly 2003) and those who bought later. If you’re in the former category, you’re sitting in a tub of butter. If you’re in the latter group, you’re paying for the butter.

This situation was accomplished by creating a “taxable assessment” value a few years back that can rise no more than 10% per year. So even though the tax appraisal may now reflect pretty much the real value of the property (not necessarily the case, BTW), the taxable assessment—the number that your taxes are actually based on—could well be only a small fraction of that amount.

Before about 2004, DC tax appraisals were actually well below the true market values even for those pre-boom days. The District has since tried to make the valuations more closely reflect the market values, but that doesn’t matter if you bought several years ago because your taxable assessment will remain absurdly low forever. This is fiscal insanity and, probably wouldn’t hold up in court, if properly challenged. But it’s political genius, because it means most people have a big vested interest in keeping this grossly unfair system going.

Let me take one block in Shaw (guess which one) for few examples. (No names or addresses, and the amounts have been fudged slightly to avoid ratting anyone out, but I can back all of this up with publicly available data.)

• A’s house was purchased prior to 2003 for a bit over $400K. The total valuation for 2007 is something over $500K, but the “taxable assessment” is less than $90K. That means A’s tax bill (at $0.88/100) will be a bit over $700.
• Just around the corner in the same block is a condo B bought in 2005 for something over $500K. The 2007 valuation for this property is almost exactly the same as for A's house, but the “taxable assessment” is nearly $500K. That means that B will be paying over $4,000 in taxes.

In case you’re wondering, none of the parties involved is elderly or poor, and both are availing themselves of the homestead deduction. But taxpayer B is paying about 6 times as much in taxes as taxpayer A for properties of equal value.

But, you might ask, wouldn’t the taxes equalize eventually? No, my child, they will not—unless there is a catastrophic fall in real estate values that will drop all market values to the level of the grandfathered assessment of taxpayer A. Remember the assessment increase is limited to 10% per year. Therefore, happy undeserving A’s taxable assessment can only rise by $9,000, while wretched meritorious B’s can increase by more than $50,000. This means the gap between A and B will only get larger as time goes on. And no, this is not an exceptional case; there are many similar examples on this block alone.

Mari brought up the issue of land valuation. The total valuation of a property is the sum of two components: the land and “improvements”. Here’s Mari’s definition: “Land = dirt stuff stands on. Improvements = stuff standing on dirt. It could be a designed palace or a crack-shack.” (Can’t do better than that.) Logically, land in one lot should be worth about the same as that of the lot next door. Not in DC. In our sample block, your friendly tax assessor has valued land anywhere from $23 per square foot to $234 per square foot. That’s right—a tenfold difference. In three adjacent lots, the valuations range from (a) $82/sf [a vacant lot] to (b) $23/sf [a derelict shell] to (c) $174/sf [a renovated condo]. This is crazy. The value of the land should be identical—remember, what’s on the land is appraised separately. The only possible explanations are incompetence or corruption.

Then there are the other anomalies, like the 4-unit new apartment building whose total taxable appraisal is less than that of our 2 bedroom condo. And apparent outright fraud, like the house that has been unoccupied for at least 2 years but which is still receiving the “homestead deduction.” And the building bought last year for almost a million dollars, whose appraisal and taxable assessment were set at roughly half that amount. I could go on.

Before someone goes all bleeding-heart on me, let me stipulate that I believe that retired folks and people of limited financial means should get a break—even a big one—on their property taxes. But there are other widely-used ways for dealing with those issues. I don’t really even think the tax I’m paying is particularly out of line with what it ought to be. What makes me angry is the inequity of it.

I know of no other jurisdiction in the region that operates this way—i.e., basically imposing a punitive tax for buying property and moving into the District. While urban hipsters may love to look down on suburbanites, if you buy a property in DC, you’re the one being played for the rube, sugar.

Oh, and newcomers…the next time some neighborhood old timer tells you that your opinion doesn’t count because you haven’t been here long enough, feel free to remind them that you, not they, are paying for the wonderful public services that the District of Columbia provides.

There’s more to say on the subject, but I feel my blood pressure rising and I’ve probably already pissed off enough people for one day.