Save on Closing Costs with the DC First-Time Homebuyer Transfer Tax Reduction
Why Do So Many DC First-Time Homebuyers Miss the Transfer Tax Reduction?
Buying your first home in Washington, D.C. takes more cash than most people expect. Closing costs usually run over 3% of the purchase price, on top of your down payment. Nearly half of those costs come from one line item: the transfer and recordation taxes the District charges on every sale.
DC lowers that tax for qualifying first-time buyers. On a home at the $794,000 price cap, the savings come to $5,757. The program is simple to use, yet we regularly meet buyers whose agent or lender never mentioned it. This guide covers how the tax works, how much you can save, who qualifies, and why the income test lets many higher earners in.
What Are DC Transfer and Recordation Taxes?
DC charges two taxes when a home changes hands. The seller pays the transfer tax, and the buyer pays the recordation tax. Each is 1.1% of the sale price for homes under $400,000 and 1.45% for homes at $400,000 and above. Both are collected at closing and paid to the DC Office of Tax and Revenue.
The rate applies to the whole sale price, so a home at $400,000 pays the higher rate on every dollar. For comparison, Maryland's rates range from 0.50% to 2.5% or higher depending on the county. Virginia's rates typically range from 0.333% to 0.666%, depending on how much you borrow. That puts DC at the high end of the region.
| Sale Price Tier | Total T&R Tax | Buyer Portion |
|---|---|---|
| Up to $399,999 | 2.2% | 1.1% |
| $400,000 and over | 2.9% | 1.45% |
Note: Rates apply to the entire sale price within each tier. Typically split equally between buyer and seller, though negotiable.
Quick Math: An August 2026 Snapshot
Here is what these taxes add up to on a typical DC sale, using August 2026 market data:
- Median single-family price (August 2026): $681,500
- Buyer-side recordation tax: $9,882
- Total DC revenue per home: $19,764 (buyer + seller shares)
- Homes sold in August: 438
- Monthly DC tax revenue: $8.66 million+
That is a lot of money for DC to collect from home sales in a single month, and it chooses to give some of it back to first-time buyers. If you qualify for the First-Time Homebuyer Reduction, your recordation tax rate drops to 0.725%. The next section shows what that saves you at different price points.
How Much Can the DC Transfer Tax Reduction Save You?
The program lowers the buyer's recordation tax to a flat 0.725% of the sale price on homes up to $794,000. That saves 0.375% of the price on homes under $400,000 and 0.725% on homes at $400,000 and above. The seller's transfer tax remains unchanged. The chart below shows the savings at common DC price points and at the cap.
| Sale Price | Standard Tax | First-Time Buyer Savings |
|---|---|---|
| $350,000 | $3,850 | $1,313 |
| $450,000 | $6,525 | $3,263 |
| $550,000 | $7,975 | $3,988 |
| $650,000 | $9,425 | $4,713 |
| $750,000 | $10,875 | $5,438 |
| $794,000 (FY2027 cap) | $11,513 | $5,757 |
Savings are the difference between the standard recordation tax (1.1% under $400,000, 1.45% at $400,000 and above) and the first-time buyer rate of 0.725%. Rounded to the nearest dollar.
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Schedule a 15-Minute CallWho Qualifies for the DC First-Time Homebuyer Transfer Tax Reduction?
There are three tests, and you have to pass all three. DC defines a first-time buyer differently than a mortgage lender does, so buyers who have owned a home before often still qualify.
First-Time DC Homebuyer
You qualify if you have never owned a home in Washington, D.C. that was your principal residence and for which you received the homestead deduction. Owning a home in Maryland, Virginia, or anywhere else does not count against you. The home you are buying must be your principal residence, and you must live in DC or move in right after closing. Investment properties do not qualify, though a multi-unit property can if you live in one of the units.
Purchase Price Cap
The purchase price must be at or below the annual cap. For FY2027, which began on October 1, 2026, the cap is $794,000. This is up from $777,000 in FY2026 and $753,000 in FY2025.
Household Income Limits
Your household's combined adjusted gross income must be at or below the limit for your household size. DC counts everyone on the deed plus everyone who will live in the home. This number comes from Line 11 of each person's most recent federal tax return, so it reflects last year's income, not your current salary. The chart below shows the FY2027 limits.
| Household Size | '26 | '27 Income Limit |
|---|---|
| 1 person | $209,340 |
| 2 people | $239,220 |
| 3 people | $269,100 |
| 4 people | $298,980 |
| 5 people | $322,920 |
| 6 people | $346,860 |
Can You Qualify for the DC Transfer Tax Reduction with a High Income?
Many buyers rule themselves out because their salary is over the limit. The test does not use salary. It uses adjusted gross income, which is your income after pre-tax items such as traditional 401(k) contributions. It also looks at your last tax return and ignores what you earn today.
Line 11 of your Form 1040 is the number to check. Most agents never ask about income, and buyers tend to quote their current salary when a lender does. A lender who works in DC every day will ask for the tax return early. Online and out-of-state lenders often do not know the program exists.
How Do You Apply for the DC Transfer Tax Reduction?
The application is handled at closing through your settlement company. Tell your lender and settlement company early that you plan to use the program so the reduced rate appears on your closing documents. We prefer to confirm eligibility before you write an offer, because it changes how much cash you need to close.
Gather Your Documents
Complete the short DC application form and have it notarized. You will also need a full copy of the most recent federal tax return for each person on the deed and each adult in the household. The last piece is a copy of your DC homestead deduction application.
Submit to the Settlement Company
Give everything to your title or settlement company before closing. They review it against the program rules and file it with the deed. The reduced rate then appears on your settlement statement.
That's it. Upon approval, the reduction will be automatically applied to your settlement statement, reducing your recordation tax portion. DC can audit the application after closing. If the District later denies your homestead deduction, it will bill you for the tax you saved, plus interest and penalties.
What Happens If You Miss the DC Transfer Tax Reduction at Closing?
If you don't file the application with the deed, the savings are gone for good. DC does not allow you to claim the reduced rate after the deed is recorded. We have met buyers who learned after closing that they qualified, and there was nothing anyone could do. Others assumed they earned too much because they looked at their salary and never checked their AGI. If you are under contract now, ask your settlement company about Form ROD 11 this week.
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