Capital Gains Taxes For DC Home Sellers
What do you owe in taxes after selling a home in the District of Columbia?
Section: Seller Strategy
Author: Susan Isaacs, Washington DC Real Estate Strategist
District of Columbia Capital Gains Tax
Capital gains and losses in the District of Columbia are treated basically the same as they are under federal law. All realized capital gains are taxed, a deduction for net capital losses is allowed, and taxpayers can carry over unused capital losses to subsequent years.
What is Capital Gains Tax?
A tax on profits earned from asset sales. This can include real estate, a business, stocks and/or many other types of investments.
Many homeowners are not required to pay capital gains taxes on the sale of their homes. The IRS excludes up to $250,000 (or $500,000 for married couples) of gain on a primary residence, which applies to a good number of U.S. homeowners. But in high-value, transient locations like Washington DC, where house hacking is also common, it’s possible to owe capital gains tax.
Take Note
IRS rules for sales of a primary residence are simple
Trickier rules for investment + house hack properties
Always consult a tax pro
Capital Gains Basic Calculation
Here’s the basic calculation in 3 steps:
Review IRS Publication 523 ebooklet (be sure to check for current revisions);
Determine your gain or loss from the sale of your primary home by using IRS Form 1099-S. Place gross proceeds from the sale in Box 2, then subtract expenses related to the sale, such as agent commissions, staging, advertising, legal, etc. The adjusted total is your realized gains;
Now reduce the realized gains by your home’s tax basis on the date of the sale (this is simply the home’s value for tax purposes). To do this, begin with the original cost of the property, plus commission, settlement fees and closing costs, updates or other improvements as allowed. (Ref. IRS Publicatons 551, 530 and 527).
Now you have your net capital gain.
Internal Revenue Service (IRS) rules on taxing capital gains include:
Length of time you’ve owned the asset (unrealized gains)
Cost of ownership + fees
Amount of realized gains
Income tax bracket
Marital status
The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than $80,000.
A capital gain rate of 15% applies if your taxable income is $80,000 or more but less than $441,450 for single; $496,600 for married filing jointly or qualifying widow(er); $469,050 for head of household, or $248,300 for married filing separately.
However, a net capital gain tax rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.
Capital Gains & House Hacking, Rental Properties
IRS Section 121 exclusion allows homeowners to exclude $250,000 of capital gains when it has served as their primary residence for two or more of the previous five years, but house hackers should note that the exclusion applies soley to the owner-occupied portion of the property, so additional calculations must be made.
Rental properties have a specific set of rules outlined in IRS Publication 527. Factor in how long the property was used as a rental versus a primary residence, and/or the portion of the home used for primary vs income residence.
IRS now allows no exclusion for periods of nonqualified use. Filers may only claim the tax exclusion for periods of qualified use. What is qualified use vs. nonqualified use?Per IRS, it’s any period from January 1, 2009 when the property is not a primary residence.
For depreciation on a house hack or rental property, refer to IRS Form 4562
There’s also a tricky depreciation trap: Depreciation Recapture. Filers can’t exclude the portion of gain previously attributable to a depreciation deduction. This is known as depreciation recapture, which is specific to rental properties, and the amount previously taken as a depreciation deduction is taxed at a recapture rate of 25%.
There are numerous publications and articles on these topics. Here are just a few you may find useful:
IRS Publication 946 How To Depreciate Property
Long Term Capital Gains Rates For 2026
There isn’t a separate, lower tax rate for long-term capital gains in the District. Instead, the city taxes all long-term and short-term capital gains as ordinary income using its progressive individual income tax brackets, ranging from 4.0% to 10.75%.
These progressive income tax rates are applied to capital gains without separate brackets for different filing statuses.
DC Tax Brackets for Capital Gains
4.00% on taxable income up to $10,000
6.00% on taxable income from $10,001 to $40,000
8.50% on taxable income from $40,001 to $60,000
9.25% on taxable income from $60,001 to $250,000
9.75% on taxable income from $250,001 to $500,000
10.50% on taxable income from $500,001 to $1,000,000
10.75% on taxable income over $1,000,000
While federal rules apply lower rates (0%, 15%, or 20%) to long-term gains, DC adds the gain directly to your ordinary income and taxes it at your marginal state rate.
Short Term Capital Gains 2026
Capital gains and losses are classified as long-term or short-term. In general:
If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term.
If you hold it one year or less, your capital gain or loss is short-term.
For exceptions to this rule, such as property acquired by gift, property acquired from a decedent, or patent property, refer to Publication 544, Sales and Other Dispositions of Assets; for commodity futures, see Publication 550, Investment Income and Expenses; or for applicable partnership interests, see Publication 541, Partnerships.
To determine how long you held the asset, you generally count from the day after the day you acquired the asset up to and including the day you disposed of the asset.
The term “net short-term capital loss” means the excess of short-term capital losses (including any unused short-term capital losses carried over from previous years) over short-term capital gains for the year.
The District doesn’t offer a lower tax rate for short-term capital gains (assets held for one year or less). They’re taxed as ordinary income using DC’s progressive income tax brackets, with rates ranging from 4.0% to 10.75%. DC uses the same tax bracket schedule for all individual filers regardless of filing status.
DC Income and Short-Term Capital Gains Tax Brackets
4.0%: On taxable income up to $10,000
6.0%: On taxable income from $10,001 to $40,000
6.5%: On taxable income from $40,001 to $60,000
8.5%: On taxable income from $60,001 to $350,000
9.25%: On taxable income from $350,001 to $1,000,000
9.75%: On taxable income from $1,000,001 to $1,000,000+
10.75%: On taxable income over $1,000,000
Unlike federal or states’ practices, The District of Columbia applies a single progressive bracket threshold structure to all filers instead of doubling brackets for married couples filing jointly
*Provided as General Information. For specific short-term capital gains tax rates, please check the latest IRS publications or consult with a tax professional.
From The IRS
Report most sales and other capital transactions and calculate capital gain or loss on Form 8949, sales and other dispositions of capital assets, then summarize capital gains and deductible capital losses on Form 1040 Schedule D, Capital Gains and Losses.
If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income.
The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year.
The term “net long-term capital gain” means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years.
The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you’re in the 10% or 15% ordinary income tax brackets. However, a 20% tax rate on net capital gain applies to the extent that a taxpayer’s taxable income exceeds the thresholds set for the 39.6% ordinary tax rate ($415,050 for single; $466,950 for married filing jointly or qualifying widow(er); $441,000 for head of household, and $233,475 for married filing separately).
If you have a taxable capital gain, you may be required to make estimated tax payments.
For additional information, refer to Publication 505, Tax Withholding and Estimated Tax, Estimated Taxes, and Do You Have to Pay Estimated Tax?
If your capital losses exceed your capital gains, the amount of the excess loss that you can claim on line 13 of Form 1040 to lower your income is the lesser of $3,000, ($1,500 if married filing separately) or your total net loss shown on line 16 of the Form 1040, Schedule D (PDF).
If your net capital loss is more than this limit, you can carry the loss forward to later years. You may use the Capital Loss Carryover Worksheet found in Publication 550, Investment Income and Expenses, or in the Form 1040, Schedule D Instructions, to figure the amount you can carry forward.
Taxpayers with significant investment income may be subject to the Net Investment Income Tax (NIIT), imposed by section 1411 of the Internal Revenue Code. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.
For information on Survivors, Executors, and Administrators, see Topic 559.
Additional information on capital gains and losses is available in Publication 550 and Publication 544, Sales and Other Dispositions of Assets.
If you sell your primary residence, refer to Topics 701 and 703, and [the afore-referenced] Publication 523, Selling Your Home.
From A District of Columbia CPA
Because capital gain taxes can involve complex calculations and knowledge of the rules of law pertaining to real estate taxation, seek advice from a tax professional expert in real estate taxation. This webpage by Kronzek, Fisher & Lopez, PLLC is a helpful resource for preliminary questions and planning. It lays out many of the scenarios common to the sale of real estate: