DC Proposes Tax Abatement to Incentivize Conversion to Housing Development

The District of Columbia’s office market, particularly Class B and C properties, is facing a calamity of epic proportions with occupancy, revenues, and valuations plummeting. Like other municipalities facing similar office devastation and the concomitant material adverse impacts on tax revenues, both in terms of ad valorem tax revenues and transfer and recordation tax revenues, the District of Columbia government is focused on incentives to promote investment in the city and to promote housing within its borders.

On January 26, 2024, the District of Columbia published a Notice of Proposed Rulemaking (new Chapter 10-B DCMR Chapter 66) informing the public that DC intends to implement tax abatements as incentives for the creation of housing from previous commercial property in eligible areas of Washington DC, including portions of the Central Business District, Foggy Bottom, the East End, and the West End. The rules establish the specific boundaries of the eligible areas for development, the conditions precedent to obtain tax abatement, and the process for applying and receiving the tax abatement. The rules also set forth the requirements to remain eligible for the tax abatement. The Office of the Deputy Mayor for Economic Development will administer the abatement program.

In brief, subject to the availability of appropriated funding (there are annual caps through 2028), a parcel that is developed or redeveloped in an “eligible area” will be eligible for tax abatements of up to 20 years following the issuance of a certificate of occupancy for the development, if:

1. There is a change in use (e.g., office to residential) resulting in the creation of at least 10 housing units.
2. At least 10% of the new housing units are affordable to households earning 60% or less of the median family income for at least 20 years; or at least 18% of the new housing units are affordable to households earning 80% or less of the median family income for at least 20 years.

“Median family income” Is defined as the “median family income for a household in the Washington Metropolitan Statistical Area as set forth in the periodic calculation provided by United States Department of Housing and Urban Development (HUD), adjusted for family size without regard to any adjustments made by HUD for the purposes of the programs it administers.” In 2022, 100% of the median family income was $142,300 for a family of four.

As an additional benefit, properties for which a tax abatement has been approved will be exempt from the Tenant Opportunity to Purchase Act (TOPA) of 1980 for the first sale within ten (10) years after the certificate of occupancy has been issued for the real property.