The 1980 Revenue Act, passed this week by the D.C. City Council, will add one percent -- $1,000 on a $100,000 sales price -- to the cost of settling on a home.
The tax package, effective Aug. 1, creates a new one percent transfer tax on the sale of real property. It also imposes a deed recordation tax on formerly exempted construction and permanent loan deeds of trust.
The new taxes should bring in about $3 million to the District this year and another $11 million in the next fiscal year, according to a report prepared by the council's committee on finance and revenue.
The tax will not apply to transfers of property used to secure loans or to transfer by the federal or District governments, by tax-exempt organizations or between immediate members of a family.
The revenue bill also repeals two exemptions from the deed recordation tax for deeds used as collateral. The exemptions repealed involve deeds on construction loans due within three years -- now subject to a recordation tax of one percent of the loan amount or of the fair market value of the property -- and deeds for permanent loans, which refinance the balance on an expired construction loan.
Under the new legislation, no additional tax must be paid on a permanent loan if tax was paid when the deed for the construction loan was recorded, unless the amount of the permanent loan is greater than that of the construction loan.
The council's revenue committee said the District has lost "substantial" taxes by allowing city developers to purchase large tracts of property and only pay the equivalent of a small part of the property's eventual value.
Maryland and Virginia already tax these kinds of deed recordings. Maryland, however, exempts purchase money mortgages taken at the time of purchase to cover the sales price.
The new District transfer taxes drew little public comment at hearings in April and June. But Robert Statham of the Greater Washington Board of Trade predicted that the increase in real estate taxes would further depress the already sluggish real estate market.