How the Mansion Tax Would (or Would Not) Impact You

Councilmember David Grosso has proposed a new “mansion tax” for residences throughout the District. While the name would suggest it would only apply to places with butlers, and lead pipes in the conservatory, and such, that’s not quite true. Depending on how much your home is assessed, it could apply to you. Here’s how.

The tax only would kick in for assessed values over $1.5 million. So if you merely own a humble abode of $1.5 million or less, you wouldn’t be affected.

Now before we go further, keep in mind that this is for assessed values, not true market values. And it would probably only really apply to taxable assessed values, which is often less than the overall assessment due to various things such as the homestead deduction. So if you’re not sure, pull out your tax bill and see what your taxable assessment is.

Ok, so you’re part of the lucky ones that own a house assessed for more that $1.5 million, your tax bill still won’t go up that much, at least not until we get to the real pricey territory.

Here’s how real estate taxes work: The city takes your taxable assessed value, divides it by 100, then multiplies it by $0.85. So if your home has a taxable assessment of $1 million, they divide it by 100 (which gives you 10,000), then multiply that by $0.85. Thus your annual tax bill would be $8,500. (As an aside, this is really a very low tax rate. Arlington taxes $0.996 per $100 assessment. Montgomery County’s rates vary by neighborhood, but are all well over $1.00 pr $100).

The mansion tax would apply a $1.25 rate to the assessed amount over $1.5 million. So a home with a $2 million taxable assessment would pay the normal rate on the first $1.5 million ($12,750). And it would pay the higher $1.25 rate on the remaining $500,000 ($6,250), resulting in a total bill of $19,000. Under the current rules, the same house would pay $17,000. Thus this would represent a $2,000 tax increase.

An even higher rate would apply to values over $5 million. That rate would be $1.50. So a $10 million dollar home (let’s face it, a genuine mansion) would see its annual tax bill climb from $85,000 to $131,500

This would be a pretty big jump. But how many people who own $10 million homes would genuinely be impacted by this? If it’s too much, they can always just downsize to a mere $1.5 million abode.

Mr. Moneybags doesn’t have to worry about moving anytime soon though. The bill was referred to the Finance Committee and it’s unclear what chances it has to be actually passed.


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4 responses to “How the Mansion Tax Would (or Would Not) Impact You

  1. kerlin4321

    “keep in mind that this is for assessed values, not true market values. ”
    Not much difference these days. There was a time when this was the case, and homeowners regarded the low-ball property valuation as a tacit quid pro quo for the poor or non-existent services the City provided. Neighboring MD and VA generally provide better services (and have far better schools) so you can argue their higher property taxes are justified compared to DC. Is DC really so desirable that people will tolerate higher taxes that put us effectively at par with better-served jurisdictions on our borders? Especially when the “mansion” definition covers modest properties owned by the decidedly non-rich, many of which are in rapidly-gentrifying neighborhoods? Grosso’s goal seems to be a tacit quid pro quo of another stripe.

  2. jad6504

    So if you have a $3MM house, you would pay an extra $6,000/yr (an extra $0.40 per hundred on the second $1.5MM). If you put a 5% capitalization rate on that, it should diminish the value of your house by about $120,000.

  3. ggh2

    On the margin, people with wealth will be less likely to purchase and owners will be more likely to sell. Prices will certainly be reduced or will increase more slowly. There could also be less income to be taxed. DC currently runs a surplus. What would this increased revenue achieve?

  4. While the tax rate is lower compared to other areas, they also have a lower income tax rate compared to DC. I think we should be looking at the overall tax burden, not just one type of tax vs another.

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