DC Is Looking North for New Ways to Tax Real Estate
Section: Market Decoder
Author: Susan Isaacs, Washington DC Real Estate Strategist
New York City just imposed a new tax on high-value homes that aren’t used as their owners’ primary residences, and now the DC Council is considering a similar tax here.
The idea of a pied-à-terre tax is part of a broader grind for revenue as the District confronts a weakening fiscal picture. Council Chair Phil Mendelson has scheduled an October 16 hearing to consider possible tax changes and increases, including the concept of taxing high-value non-primary residences.
For now, that’s all it is: an idea.
There’s no introduced DC pied-à-terre bill, no proposed tax rate, no established property-value threshold and, perhaps most importantly, no definition yet of exactly what DC would consider a pied-à-terre.
That last part may prove considerably more complicated than setting the tax rate.
Because before DC can tax pied-à-terres, it has to figure out which homes actually are pied-à-terres.
What Is a Pied-à-Terre?
“Pied-à-terre” literally means “foot on the ground,” and in real estate that’s pretty much what it is: a secondary residence maintained for occasional use rather than as the owner’s primary home. A toehold, if you will.
Someone might maintain a DC pied-à-terre because they work here several days a month. They might divide their time among several cities. They might simply want a residence in Washington without making it their primary home.
A pied-à-terre tax adds an additional tax or surcharge to qualifying properties that aren’t being used as primary residences. Sounds simple, but it isn’t.
Pied-à-Terres Are Often Condos
In my experience selling DC real estate, pied-à-terres are disproportionately condominiums. I can’t give you a statistic to prove that because the District doesn’t appear to collect one. But there’s an obvious practical reason for it: condos are particularly well suited to “lock and leave” ownership. Someone maintaining a part-time residence doesn’t necessarily want to worry about an empty house while they’re away. Exterior maintenance is handled by the association. Condominiums can offer controlled building access, security systems, front-desk staff or concierges, mail and package handling. And there’s the additional security of an upper-floor unit. Say, for example, this one. They’re a natural choice for commuters, people who divide their time among multiple cities and others who want a part-time home in DC.
But here’s something we don’t know:
How many DC condos actually are pied-à-terres?
In fact, we don’t appear to know how many DC residences of any type are pied-à-terres.
And that’s where this proposed revenue source starts getting complicated.
First, DC Would Have to Find Them
DC doesn’t currently have a property-tax classification labeled “pied-à-terre.” The city doesn’t even have a separate, higher property tax class solely for standard non-owner-occupied or rental residential properties. Tax records do document which properties receive the Homestead Deduction available for qualifying principal residences, but you can’t simply reverse that database and conclude that everything without a Homestead Deduction is a second home:
A non-homesteaded residence might be a pied-à-terre.
It might also be a long-term rental.
It might be occupied by a family member.
It might be owned through a trust or business entity.
It might even be someone’s primary residence whose owner hasn’t claimed or qualified for the Homestead Deduction.
Consider three identical condos on the eighth floor of the same building. None receive the Homestead Deduction:
One belongs to an investor and has been rented to the same DC resident for five years
Another is occupied by a family member attending university
The third belongs to someone whose primary residence is in Florida and who spends 40 nights a year in DC.
Depending on how DC writes the law, the third might owe a pied-à-terre tax while the first two might not.
How does DC know which is which?
Before the District can collect this tax, it would have to develop some method of identifying the properties that might be subject to it and then sorting them according to how they’re actually being used.
That’s not simply a new tax rate.
It’s a new administrative system. One that would require DC to pry into people’s living arrangements, familial relationships and whereabouts just to determine how they use property they lawfully own.
The property record won’t tell DC whether the person living in that second condo is the owner’s college-age daughter, a long-term tenant or the owner spending 40 nights a year in Washington. To make that distinction, DC has to start mining information about the people inside it.
Flock cameras (DC has 144+) track our movement patterns and who we associate with. Meta tracks what we do online and who we associate with. Does DC really need to know where your kids live and where you slept this week to calculate your property-tax bill?
A New Revenue Stream, Or a Logistical and Legal Nightmare?
The higher tax DC imposed on qualifying expensive residential property beginning in 2025 is comparatively easy to administer. OTR knows the property’s classification. OTR knows its assessed value. Apply the appropriate tax rate.
A pied-à-terre tax is fundamentally different because the taxable characteristic isn’t simply the property.
It’s how people live in it.
And that can be remarkably difficult to establish:
What constitutes a primary residence?
How many days must someone occupy it?
What happens when someone divides the year among three homes?
What about someone who works in Washington during the week and spends weekends at a home elsewhere?
Spouses who maintain different residences?
An adult child living in a parent’s property?
A home owned by a trust?
An LLC?
A property that’s supposedly rented?
At some point, enforcing an occupancy-based tax requires the government to examine fairly personal information about where people actually live and how they use their homes.
How Far Into Your Life Does DC Have to Look?
This isn’t merely hypothetical. New York is finding that out right now. Its new Non-Primary Residence Property Surcharge provides exemptions when qualifying properties are used as primary residences by owners, tenants, certain family members and some occupants connected to trusts and business entities. But somebody has to prove the exemption.
Depending on the circumstances, New York can require documents including tax returns, driver’s licenses or other identification, leases, utility bills, proof of rent payments, renter’s insurance, birth or marriage certificates, trust agreements and LLC operating agreements. That’s quite a dossier to establish whether somebody owes a property surcharge. And disagreements don’t simply disappear. They produce determinations and appeals.
DC would have to decide what evidence it requires, who reviews it, how frequently property owners have to provide it, how that information is protected and what happens when the District and the owner disagree. So what initially looks like an easy way to collect money from wealthy second-home owners begins to look more like a continuing residency-verification program.
And those folks tend to like their privacy. They also have family offices, wealth planners, CPAs and attorneys on speed dial.
And trusts. That’s sticky.
NYC’s new surcharge doesn’t simply look at the name on the deed. If a property is held in trust, the sole beneficiary or beneficiaries of the trust can establish the primary-residence exemption. NYC may require the trust agreement or an affidavit, along with documentation establishing primary residence. Entities such as LLCs and partnerships create similar look-through problems.
DC already encounters this issue with Homestead. A property transferred to a qualifying revocable trust can retain Homestead when it remains the principal residence of the trustor; simply seeing “XYZ Trust” in the ownership record doesn’t tell OTR whether the property is someone’s home.
So for a DC pied-à-terre tax, imagine:
The Smith Family Trust owns a $3 million Georgetown condo.
Who actually uses it? The grantor? A beneficiary? Several beneficiaries? A child? Is one of them living there full-time? Does Mom use it 40 nights a year while the daughter lives there permanently? What if there are multiple beneficiaries living in different states?
Now DC potentially needs to know who is behind the trust and how those people use the property before it can decide whether the tax applies.
It keeps going deeper and deeper.
This Isn’t a Database You Build Once
Even if DC successfully identified every pied-à-terre in the District on Day One, the job wouldn’t be finished. People move. Tenants leave. Second homes become primary residences. Primary residences become rentals. Rentals become second homes. Properties change ownership. Family members move in and out. Trusts and business entities change.
Whatever system DC creates would have to be continually updated and periodically verified. That requires employees, IT systems, exemption processing, verification, enforcement, investigations, appeals, data security and money.
Somebody do the math on that.
DC’s Enforcement Record Doesn’t Exactly Inspire Confidence
This is where DC’s experience with short-term rentals becomes particularly relevant.
Short-term-rental regulations also depend on knowing how residential property is actually being used. And the city has struggled to enforce them.
In its FY2026 budget report, the DC Council’s Committee on Public Works and Operations cited data showing more than 1,500 short-term-rental listings without required license numbers. My guess is that there are probably more. There were also listings apparently using licenses for hosted short-term rentals while operating as unhosted vacation rentals. Then the Committee asked DLCP how it was monitoring compliance with the statutory 90-night annual limit on vacation rentals. The answer was remarkable.
DLCP said it wasn’t monitoring or enforcing that part of the law at all.
DLCP has subsequently reported additional enforcement efforts (to be carried out by the people who have continually failed to maintain compliance).
Enforcement isn’t an announcement, a warning letter or an initial compliance campaign. It’s something an agency has to keep doing. And a pied-à-terre tax would require exactly that kind of sustained, dedicated administration year after year.
The Council therefore shouldn’t merely estimate how much money a pied-à-terre tax could theoretically raise. Before creating it, Council should commission a cost-benefit analysis that weighs projected revenue against the full cost of discovery, administration and enforcement, informed by DC’s actual record of enforcing comparable housing regulations.
That analysis should tell us which agency would administer the tax, how the District would identify potentially taxable properties, how occupancy would be verified, how frequently status would be reviewed, how many employees would be required, what technology and data systems would be needed, what enforcement and appeals would cost, and how much net revenue would remain after all of it.
Otherwise, DC risks creating another elaborate housing rule that fails in execution while taxpayers pick up the cost of creating and administering it.
This Could Kick DC’s Condo Market When It’s Down
The administrative problem isn’t the only reason DC should proceed carefully. There’s another reason the eventual definition and tax threshold matter. As noted earlier, pied-à-terres are disproportionately condominiums in my experience. Unfortunately, DC’s condo market is already in its weakest stretch since the pandemic.
By April, year-to-date DC condo sales had fallen to their lowest level in a decade, according to Bright MLS data. Condo owners who couldn’t sell were increasingly becoming “accidental landlords.”
Bright MLS data through July 2026 shows just how differently condos are performing from the rest of the market. Condo and co-op sales were down 8.2% year over year, while detached-home sales were up 8.3%. The average condo/co-op sale price fell 5%, from $609,433 to $579,047. Meanwhile, overall DC sales were down just 1.4% and the city’s median sale price was unchanged.
Inventory tells another part of the story. At the end of July, 1,547 condos and co-ops were actively listed for sale, representing nearly 59% of all active residential listings in DC. Only 258 condos and co-ops sold during the month.
The five-year trend is even more telling. DC condo prices have essentially gone nowhere while the amount of inventory has risen dramatically and the time it takes to sell a condo has lengthened. By July, DC had roughly seven months of condo/co-op supply, compared with about four months for detached homes, and the median condo took roughly 53 days to sell, compared with about 17 days for a detached home.
In other words, this isn’t simply a soft DC housing market. The weakness is disproportionately concentrated in the type of housing that also makes particularly good sense as a pied-à-terre.
And there’s another condo issue looming. Fannie Mae and Freddie Mac’s new underwriting guidelines call for 15% minimum reserves. No official or exact citywide figure has been published tracking precisely how many Washington, DC condominiums will become non-warrantable ahead of the January 4, 2027 reserve funding deadline. But someone should.
Nationwide, it’s estimated at 35% to 40%.
Whatever the eventual number in DC, reduced access to conventional financing would add another negative pressure to a condo market that’s already struggling.
So the DC Council might want to review the numbers before deciding to play Jenga with its real estate market.
Didn’t DC Just Raise Taxes on Expensive Homes?
Yes, yes it did.
Beginning in tax year 2025, DC created a higher marginal property-tax rate for qualifying high-value Class 1B residential property.
For tax year 2026, the threshold is $2.558 million. The portion of taxable assessed value up to that threshold is taxed at $0.85 per $100, while the portion above it is taxed at $1.00 per $100. The CFO originally projected the change would generate roughly $5 million to $6 million annually.
It isn’t an enormous increase for any individual property. But barely a year after imposing it, DC is looking at high-value residential real estate again.
Depending on how a pied-à-terre tax is eventually structured, a qualifying property could potentially be subject to both.
The 2025 tax is based on property classification and value.
A pied-à-terre tax would presumably add occupancy status to the equation.
Different taxes.
Same property.
An Uncomfortable Defense of Very Rich People
Ooh, I don’t want to write this:
DC should be careful about piling additional taxes onto extremely wealthy property owners.
Not because they can’t afford them. They can. And not because Washington’s multimillionaires and billionaires need anyone to pass the hat. They don’t.
The problem is that “they can afford it” isn’t, by itself, a sound basis for tax policy. “Let’s get those guys” is not the way legislating is supposed to work.
Over the past two years, high-end buyers have been one of the strongest sources of demand in an otherwise difficult Washington housing market. While high mortgage rates and affordability constraints have sidelined many ordinary buyers, enormous transactions at the top have continued to close. Those sales have helped support the market’s dollar volume. Here’s some fun math:
Consider a $15 million DC home sale.
At the District’s 1.45% deed recordation tax and 1.45% deed transfer tax, that single transaction generates $435,000 in transaction taxes. That’s about the average price of a DC condo right now.
For additional perspective, the latest available Census estimate puts DC’s median household income at about $110,000 a year.
In other words, DC collects nearly four years of the median District household’s gross income from the transfer and recordation taxes on one $15 million home sale.
Then the property generates annual real-property taxes. If it’s a qualifying high-value Class 1B property, DC already collects the higher marginal rate on its value above the applicable threshold. The owner pays to insure, maintain and operate it. And when the property changes hands again, DC collects transaction taxes again.
Income tax is one thing, but I’m having a little difficulty seeing these property owners as an undertaxed resource the District has somehow overlooked. And taxes aren’t the only consideration. There’s also the question of what happens to the real estate market if DC gives these buyers reasons to spend their money somewhere else.
I’m not suggesting wealthy buyers deserve some sort of civic medal for purchasing $10 million houses. But economically, their money spends just as well as everyone else’s. These buyers haven’t been freeloading on the District. They’ve been an exceptionally lucrative tax base. That doesn’t mean DC should never tax them more. It means Council should understand the difference between a productive tax base and an inexhaustible one.
Yes, they can afford another tax.
They can also afford to give DC the middle finger and move to Great Falls. It only has one Flock camera.
Extremely wealthy buyers have options ordinary buyers don’t. Someone who wants access to Washington doesn’t necessarily have to own a home in the District. They can buy across the river in Northern Virginia. A part-time resident can rent. They can stay in a hotel. Or they can decide they don’t need a Washington residence at all. And once that buyer chooses somewhere else, DC doesn’t merely lose the hypothetical pied-à-terre surcharge. It loses the annual property-tax revenue that ownership would have generated. It loses some of the economic activity associated with maintaining and operating the property and living in the city.
Why Is It Anyone’s Business How Often You’re There?
There are plenty of practical questions DC should answer before creating a pied-à-terre tax.
But I have a more fundamental one: Why should the District care how often someone sleeps in a home they own?
People who buy non-primary residences aren’t somehow escaping the costs of owning DC real estate, or reaping benefit from the Homestead Deduction. Many don’t pay local income tax as full-time residents do, but they also don’t consume city resources like full-time residents do.
So what exactly is the public-policy problem we’re trying to correct? The truth is, there isn’t one. As this post stated in the opening, the Council is grinding for money and this segment of the population seems an easy target.
Council Chair Phil Mendelson’s October 16th hearing should reveal more about whether the idea has political momentum and what Council members actually have in mind.
Whatever it is, I vote No.
Disclaimer
We are not attorneys, legal experts, investment counselors, or CPAs. The content on this channel is presented for informational purposes only and derived from reliable sources, but should not be considered legal, financial, investment, transaction or real estate practice advice. Susan Isaacs and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific real estate transaction. Homebuyers should read applicable D.C. law and code as part of their due diligence, and seek help from licensed, qualified professionals for interpretation and application to their specific transaction.