DC capital gains tax on real estate depends first on where you live: District residents pay up to 10.75% on the gain, but federal law bars the District from taxing the personal income of nonresidents, so a Maryland or Virginia owner of a DC rental owes DC no income tax on the sale. A 1031 exchange in Washington DC defers the resident tax and the federal tax; it does not touch the District's recordation and transfer taxes, which reach 2.9% combined on most deeds.
Reviewed by Jon Hilley, CEO & Founder of 1031 Specialists. Last reviewed September 29, 2026.
| District tax on real estate gains | Residents: ordinary income rates from 4% to 10.75%; 10.75% on taxable income over $1,000,000 |
|---|---|
| Long-term capital gains treatment | No reduced rate |
| Nonresident withholding at closing | None. The District cannot tax nonresident individuals' personal income (D.C. Code §1-206.02(a)(5)) |
| Withholding form | None; unincorporated businesses with more than $12,000 of gross income file a DC franchise tax return |
| Transfer or conveyance tax (a 1031 does not defer it) | Deed transfer tax and recordation tax of 1.1% each under $400,000 and 1.45% each at $400,000 or more (2.9% combined) |
| Clawback on out-of-state replacement property | None |
| Conforms to Section 1031 | Yes for residents; DC income starts from federal adjusted gross income |
| Business tax note | Unincorporated business franchise tax of 8.25% can apply to rental businesses, including those owned by nonresidents |
Table of contents
- How much is capital gains tax on real estate in DC?
- DC tax on a $300,000 gain: worked example
- Nonresident sellers: no withholding, no DC income tax
- The DC unincorporated business franchise tax
- DC recordation and transfer taxes
- DC conformity and clawback
- Moving into or out of DC
- Where DC 1031 exchanges happen
- Federal exchange rules for DC sellers
- DC 1031 exchange mistakes to avoid
- Start your DC exchange
- Frequently asked questions
- Sources
How much is capital gains tax on real estate in DC?
For a District resident, a real estate gain is ordinary income on the DC schedule. The top brackets are 9.25% from $250,000 to $500,000 of taxable income, 9.75% from $500,000 to $1,000,000, and 10.75% above $1,000,000. A single large sale easily moves a resident into the top two brackets. There is no separate treatment of depreciation recapture and no neighborhood or local income tax on top.
That 10.75% top rate is one of the highest in the country, which is why exchanging matters more for District residents than for most sellers. Check the federal recapture portion with our depreciation recapture calculator.
DC tax on a $300,000 gain: worked example
Assumptions: a long-term gain of $300,000 on an investment property, $100,000 of it unrecaptured §1250 depreciation, married District residents filing jointly, already in the top federal bracket and the 10.75% DC bracket.
| Tax line | Amount |
|---|---|
| Unrecaptured §1250 gain: 25% × $100,000 | $25,000 |
| Remaining long-term gain: 20% × $200,000 | $40,000 |
| Net investment income tax: 3.8% × $300,000 | $11,400 |
| Federal subtotal | $76,400 |
| DC income tax: 10.75% × $300,000 | $32,250 |
| Total tax deferred by a full 1031 exchange | $108,650 |
A Maryland or Virginia resident selling the same DC property would owe $0 to the District as an individual, but would owe their home state instead, and a rental business may owe the 8.25% franchise tax described below. See the side-by-side view in our capital gains vs. 1031 exchange comparison.
Nonresident sellers: no withholding, no DC income tax
The Home Rule Act prohibits the DC Council from imposing any tax on the personal income of an individual who is not a District resident. As a result, DC has no nonresident withholding on real estate sales, and nonresident individuals do not file a DC income tax return for the gain. This is the single biggest difference between DC and its neighbors, which both tax nonresidents on in-state property.
Your home state still taxes the gain, and with no DC tax paid there is nothing to credit. Foreign sellers also face federal FIRPTA withholding; read FIRPTA for foreign sellers.
The DC unincorporated business franchise tax
The prohibition covers personal income. It does not cover the District's franchise tax on unincorporated businesses, which applies at 8.25% of taxable income, with a $250 minimum ($1,000 if DC gross receipts exceed $1 million). An unincorporated business with more than $12,000 of gross income from DC sources must file. Rental operations are often treated as a business for this purpose, so a nonresident with a sizable DC rental portfolio held personally or in an LLC taxed as a partnership may owe the tax on operating income and on gain from a sale.
A deferred exchange keeps the gain out of taxable income in the year of sale. Confirm with a DC CPA whether your rental activity is subject to the franchise tax before you decide between selling and exchanging.
DC recordation and transfer taxes
The District charges two deed taxes at the same rate on the greater of the price or assessed value:
- Under $400,000 (residential): 1.1% transfer tax plus 1.1% recordation tax.
- $400,000 or more: 1.45% plus 1.45%, applied to the entire amount, for 2.9% combined. Commercial and mixed-use deeds also use 1.45% each on the current form.
By local custom the seller pays the transfer tax and the buyer the recordation tax, though contracts can shift them. On a $1.2 million rowhouse sale each tax is $17,400. A 1031 exchange does not defer either one. If your replacement property is also in DC, you pay recordation tax again as buyer, so an in-District trade costs about 2.9% in deed taxes across the two closings.
DC conformity and clawback
District residents compute tax starting from federal adjusted gross income, so a gain deferred under Section 1031 is also deferred for DC. The District has no clawback and no annual reporting for replacement property outside DC. If you exchange into Virginia property and later move to Florida, DC does not collect when you sell.
Moving into or out of DC
Because DC taxes only residents, residency on the date of sale decides whether the District taxes the gain. A resident who exchanges into property elsewhere and then moves away escapes DC tax on the later sale. Someone moving into the District should know that DC will tax the whole gain on a later sale, including appreciation from before the move.
Most DC owners live in or trade with Maryland and Virginia. Maryland taxes residents and nonresidents alike, so an exchange from DC into Maryland rentals brings Maryland withholding into play on the eventual sale. Many District sellers exchange into Florida or Texas properties they plan to retire near.
Where DC 1031 exchanges happen
District exchanges cluster around rowhouse and condo rentals in Capitol Hill, Petworth and Columbia Heights, newer condo buildings in Navy Yard and NoMa, and small apartment buildings east of the river. Downtown office owners have been trading out of the sector since 2020, often into industrial or net-lease retail in the suburbs. We do not have a DC city guide yet; confirm your asset type with does my property qualify.
Federal exchange rules for DC sellers
Two deadlines control every DC exchange: 45 days from the deed recording to identify replacements and 180 days to close. A qualified intermediary holds the funds; if they touch your account, the exchange fails. Reinvest at least your net sale price and replace any debt paid off. Our 1031 exchange guides explain the details, and the 45-day identification validator and 1031 exchange calculator handle the math.
DC 1031 exchange mistakes to avoid
- Assuming nonresidents owe nothing at all. The franchise tax on unincorporated businesses can still apply to rental activity.
- Moving into DC before selling. Selling a week after establishing residency exposes the gain to rates up to 10.75%.
- Forgetting deed taxes on the replacement. An in-District purchase adds 1.45% recordation tax at $400,000 and up.
- Converting a condo you lived in without planning. Mixed personal and rental use needs careful allocation.
Start your DC exchange
We work with DC settlement companies every week. Send us your contract, and we will prepare the exchange agreement and assignment before closing. Start your exchange or book an intro call.
Frequently asked questions
How can I avoid capital gains tax on real estate in DC?
District residents can defer both DC and federal tax with a 1031 exchange into like-kind investment property. Nonresident individuals owe no DC income tax on the gain, but still owe federal and home-state tax, which an exchange also defers.
What is the DC capital gains tax rate?
The District taxes capital gains as ordinary income. Rates run from 4% to 10.75%, with 9.75% from $500,000 to $1,000,000 of taxable income and 10.75% above $1,000,000.
Do nonresidents pay DC tax when they sell DC property?
Nonresident individuals do not pay DC income tax, because federal law bars the District from taxing their personal income, and DC does not withhold at closing. An unincorporated rental business may still owe the 8.25% franchise tax.
How much are DC transfer and recordation taxes?
Each is 1.1% on residential deeds under $400,000 and 1.45% at $400,000 or more, applied to the full price. The seller customarily pays transfer tax and the buyer recordation tax. A 1031 exchange does not defer them.
Can I exchange DC property for property in Maryland or Virginia?
Yes. Any US investment real estate is like-kind, and the District has no clawback. The new property will be subject to that state's tax rules when you sell.
Sources
- D.C. Code §47-1806.03 (individual income tax rates)
- D.C. Code §1-206.02 (limits on Council authority)
- D.C. Code §47-1808.03 (unincorporated business tax rate)
- D.C. Code §47-1805.02 (who must file returns)
- DC Office of Tax and Revenue: Form FP-7/C recordation and transfer tax (FY2025)
- DC Office of the CFO: property tax rates
Related: 1031 exchange in Maryland, Virginia, Delaware, Pennsylvania and all 50 states.
General information about District of Columbia taxes, not tax or legal advice. Rates and forms change, so confirm with a DC tax professional.
