Bulletin: DC2019002

Dear Associates:

The purpose of this Bulletin is to advise District of Columbia (“DC”) agents that the DC Recorder of Deeds has issued a new FP7C form and that the recordation and transfer tax rate is increasing for all class 2 properties $2 million dollars and above, and for certain none class 2 properties located within a structure that contains class 2 property. 

New FP7C Form:

All recordings submitted on or after October 1, 2019, must use the new FP7C Form, even if the closing occurred prior to October 1, 2019. The Recorder of Deeds will not accept the FP7C Form currently in circulation on or after October 1, 2019. The new FP7C Form can be found here.

New Commercial Recordation and Transfer Tax Rate:

On October 1, 2019, the recordation and transfer tax rate for deeds and deeds of trusts for Class 2 commercial properties valued at $2 million and higher will increase. The new rate will be 5% (2.5% recordation tax and 2.5% transfer tax). The new 5% rate is also applicable to economic interest transfers valued at $2 million and higher. (For the enacted legislation, see here; the Fiscal Year 2020 Budget Support Act of 2019, Title VII, Subtitle C (beginning on p. 95) Bill #B23-0209, Act #A23-0092.)

The new tax rates will apply to any non-homestead property with a consideration of $2 million or more if any portion of the building in which the lot being conveyed or secured contains a commercial component; provided that prior to the instrument being recorded there is majority common ownership (direct or indirect) between the residential condominium unit and the portion of the property that is commercial (class 2). This provision does not apply to real property which is granted the homestead deduction by application of the grantee with the recordation of the deed, as well as an accessory lot included within such deed.

For deeds of trust, the $2 million threshold test is applied by aggregating all debts in deeds of trust pertaining to the same real property that are recorded on the same day. Where the aggregate of debts is $2 million or higher, the new tax rate will apply.

Example 1: Facts: Class 2 property with a sales price of $10m. Result: The deed will be taxed at the new rate.

Example 2: Facts: Class 2 property being encumbered by a $25m deed of trust. Result: The deed of trust will be taxed at the new rate.

Example 3: Facts: Class 2 property being encumbered on the same day by a $1.5m first deed of trust and by a $500k second deed of trust. Result: Both deeds of trust will be taxed at the new rate.

Example 4: Facts: New Class 1 residential condominium. Sales price is $2 million. Purchaser will occupy the property as his/her primary residence and will apply for the homestead exemption. A dry cleaner is located in the basement of the building as an amenity of the property. The dry cleaner is class 2 property. The dry cleaner unit and the residential condominium unit have separate and distinct tax ids. The developer owns both the residential condominium unit and the dry cleaner unit. Result: The deed will NOT be taxed at the new rate because the residential unit is homestead property. Note: the homestead application must be submitted with the deed. The homestead application can be found here.

Example 5: Facts: Same facts as Example 4; except, the property will not be homestead property. Result: The deed WILL be taxed at the new rate because prior to the execution of the deed there was common ownership between residential condominium unit and the dry cleaner (commercial) unit and the residential condominium unit is not homestead property.

Example 6: Facts: Same facts as Example 5; except, several months prior to current transaction, the developer sold the dry cleaner unit to a party unrelated to the developer and the developer has no membership or shareholder interest in the party that purchased the dry cleaner unit. Result: The deed will NOT be taxed at the new rate because prior to the execution of the deed there was NOT common ownership between residential condominium unit and the dry cleaner (commercial) unit.

If you have any questions relating to this or other bulletins, please contact a Stewart Title Guaranty Company underwriter.

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