DC Residents Save Thousands: DC Tax Abatement Program Guide
The Ultimate Guide to the DC Tax Abatement Program (2026)
By John Downs - Certified Mortgage Advisor
Let's be real: buying your first home in Washington, D.C., is a major financial undertaking. Between the down payment, closing costs that add up fast, and the prospect of ongoing property taxes, it's easy to feel overwhelmed.
But what if you could eliminate two of those hurdles in one move?
In today's market, with home prices stabilizing and incomes on the rise, one of the most powerful but often overlooked tools for DC homebuyers is more relevant than ever. The DC Tax Abatement Program is a straightforward relief option that can waive your recordation tax at closing and exempt you from property taxes for five full years.
We've seen this program save our clients more than $10,000 at the closing table and another $20,000+ over the next five years. This guide will walk you through exactly how it works, who qualifies, common mistakes to avoid, and the simple steps to apply.
What Is the DC Tax Abatement Program?
Formally known as the Lower Income Homeownership Exemption, the program was established under D.C. Law 5-31 to support affordable homeownership. It is available to any buyer who intends to make their home in the district their primary residence, not just first-time buyers. This includes single-family homes and condos.
At settlement, the program eliminates your recordation tax and applies the seller's transfer tax as a credit to you. Combined, this amounts to 1.825% to 2.9% of the sale price in direct relief. After closing, it abates your real property taxes for five years, starting on October 1 of the year following the application.
You can stack it with other DC first-time homebuyer programs, and it works with any mortgage type, including Conventional, FHA, or VA loans. For FY2026 (effective October 1, 2025), the program updates include CPI-adjusted income limits and a new sale price cap of $576,000.
Quick Math: A September 2025 Snapshot
For a qualifying home purchased at $475,000, a buyer eligible for the first-time homebuyer transfer tax rate would typically pay $3,443 in transfer taxes. Under the DC tax abatement program, this entire amount is waived, and the seller’s portion ($6,887) is credited to the buyer.
The total immediate closing cost reduction is $10,330. With annual property taxes averaging $3,336, the five-year savings amount to an additional $16,680.
The table below illustrates potential savings at common price points:
DC Tax Abatement: Potential Savings Snapshot
| Sale Price | Closing Credit | 5-Year Tax Abatement | Total Savings |
|---|---|---|---|
| $350,000 | $6,388 | $11,262 | $17,650 |
| $450,000 | $9,788 | $15,512 | $25,300 |
| $550,000 | $11,962 | $19,763 | $31,725 |
Note: In designated Economic Development Zones (EDZs), such as parts of Ward 8 near the Anacostia River, income limits are increased by about 40%.
Who Qualifies for the DC Tax Abatement?
Qualification is centered on household income and the property's purchase price. You must occupy the home and submit your application within 30 days of closing. The FY2026 limits (effective October 1, 2025) are based on current gross household income from all sources, not adjusted gross income (AGI).
DC Tax Abatement: FY2026 Income Limits
| Household Size | Standard Limit | EDZ Limit |
|---|---|---|
| 1 Person | $89,760 | $126,200 |
| 2 People | $102,540 | $144,250 |
| 3 People | $115,380 | $162,250 |
| 4 People | $128,160 | $180,300 |
| 5 People | $138,420 | $191,550 |
Sale price cap: $576,000 for both standard and Economic Development Zones.
Real Examples: How Tax Abatement Makes a Difference
We have guided many clients through this program, and the outcomes show its real-world impact.
Consider Kayla, a single mom who bought a $550,000 three-bedroom condo in Brookland with her mother. They paired an FHLB grant for the down payment with the tax abatement, which reduced their closing costs by $11,960 and waived $20,000 in property taxes over five years. As Kayla said, this created the breathing room they needed to settle in without financial strain.
Then there's Steve, a 24-year-old starting his first marketing job at $75,000 while pursuing his master's at Georgetown. His dad co-signed the mortgage, but only Steve's income was used for eligibility. They bought a $400,000 condo in Dupont Circle with no recordation tax, a full seller credit of $8,700 off closing costs, and a five-year property tax exemption, which transformed a tight budget into a sustainable one.
Key Considerations: Watch for These Details
While the program offers substantial value, a few details are key. Lenders will still include the full property tax amount in your debt-to-income ratio for mortgage approval, as the abatement starts after closing. The income rules are strict and include all current income sources, such as bonuses, overtime, and investment income, from every household member. In Kayla's case, her mother's Social Security was counted toward the household total, even though she was not on the loan.
How to Apply (Straightforward Steps)
Following these steps is important because overlooking this program is easier than you might think, and the cost of that mistake is significant!
Don't Miss Out, We've Seen It Happen
We have encountered this scenario more times than we care to count. Take Susan, an active-duty Marine working through a permanent change of station (PCS) to Bowling Air Force Base in DC from Camp Pendleton, California, with her husband and newborn. Earning a combined $150,000, they struggled to find a townhome within their budget while working with an out-of-state lender.
When our team reviewed their situation, we realized they qualified as a family of three in an Economic Development Zone, meeting the $162,000 income limit. The program allowed them to increase their purchase price by $60,000 using a VA Mortgage, while keeping their payments in range. They found a perfect home, received the transfer tax closing credit of $11,600, and had nearly $19,000 in future property taxes waived. This common oversight occurs because realtors often do not discuss income with their buyers, and out-of-area lenders miss DC-specific programs.
Is the DC Tax Abatement Program Right for You?
The DC Tax Abatement Program offers a powerful path to affordable homeownership in the District. By eliminating the recordation tax at closing and providing a five-year break from property taxes, it directly addresses some of the biggest financial barriers for homebuyers. As we've seen with clients like Steve, Kayla, and Susan, these savings aren't just numbers on a page; they provide the real-world breathing room needed to purchase a home confidently.
However, the path to securing these benefits is paved with details. From calculating household income correctly to understanding the nuances of Economic Development Zones, success requires careful planning and local expertise. Working with an out-of-area lender or a team unfamiliar with DC-specific programs often means leaving tens of thousands of dollars on the table.
Take the Next Step
If you're wondering whether you qualify or how this program could fit into your specific homebuying strategy, don't leave it to chance. The rules can be complex, but the process doesn't have to be.
Schedule a free, no-obligation strategy session with our team today. We'll help you get clear on your eligibility and build a plan to make your DC home purchase as affordable as possible.
Frequently Asked Questions
Yes! The tax abatement can be stacked with every program available, such as HPAP, DC Open Doors, Vellum Advantage CRA, and more.
One word of caution: if you are negotiating seller closing cost credits, check with your lender to ensure all the funds can be used! Credits typically cannot exceed actual costs.
They raise the income limits significantly, creating more opportunities for buyers in those areas.
No, the only income counted towards the DC Tax Abatement income limits is for those who will be occupying the property.
Approvals are often completed the same day documents are submitted to your settlement company. Occasionally, they will have questions about interpreting your income and will need to call the DC's tax office for additional clarification. This could add several days to the approval process.
