DC Tax Guide for the Year 2025
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In the heart of the United States, the District of Columbia (D.C.) stands as a unique entity, not just a political hub but also a place with its distinct tax systems. This article provides an overview of D.C.'s tax landscape, focusing on property, income, and estate taxes, as presented in a report by Deloitte, a leading authority on international tax law and tax systems.
Property Taxes
When it comes to property taxes, D.C. charges a flat rate of $0.24 per gallon for both gasoline and diesel. Homeowners, whether young or old, may qualify for the homestead exemption, providing a reduction in property taxes. For those aged 65 and above, an additional 50% reduction in property tax is possible. However, to be eligible for these reductions, applicants must have at least 50% ownership of the property and reside at the property.
Property tax reductions for 2025 are contingent upon the total 2023 federal adjusted gross income of everyone living in the property, excluding tenants, being less than $159,750. It's worth noting that property taxes in D.C. can be steep, particularly for those inheriting property.
Sales Taxes
D.C. boasts one of the lowest sales tax rates in the country, sitting at 6%. However, certain goods are taxed separately. For instance, the District taxes cigarettes at $2.50 per pack of 20, other tobacco products at 67% of the wholesale price, medical marijuana at 5.75%, recreational marijuana at 5.75%, wine at $0.30 per gallon, beer at $0.09 per gallon, and liquor at $1.50 per gallon.
Income Taxes
D.C. operates a progressive income tax system with rates ranging from 4% to 10.75%. The taxable income brackets are as follows: 4% on less than $10,000; 6% on $10,001 to $40,000; 8.5% on $40,001 to $60,000; 9.5% on $60,001 to $100,000; 10% on $100,001 to $300,000; 10.25% on $300,001 to $500,000; 10.5% on $500,001 to $800,000; and 10.75% on more than $800,000.
Exemptions and Exclusions
Social Security retirement and Railroad Retirement benefits are tax-exempt in D.C., making it a tax-friendly destination for retirees. However, military retirement pay is fully taxable, and pensions, as well as 401(k) and IRA Distributions, are also taxable.
Estate Taxes
D.C. has one of the more significant estate taxes, with estates valued over $4,873,200 subject to a city estate tax with rates ranging from 11.2% to 16%.
In conclusion, understanding D.C.'s tax systems is crucial for those considering a move or investment in the city. While property taxes can be steep, the District offers several exemptions and exclusions, such as the homestead exemption and the tax-exempt status of Social Security benefits. Additionally, D.C.'s sales tax rate is relatively low compared to other states, making consumer spending less burdensome. However, it's essential to consider the District's estate taxes when planning for the distribution of assets.
