Don’t Get Burned by Misclassed Real Estate

If you’ve ever been on the receiving end of a tax rate change in Washington, D.C., due to misclassed real estate, the increase can be startling. In addition to the various commercial Class 2 tax rate brackets, there is also a vacant (Class 3) and blighted tax rate (Class 4) as well.

Class 3 will result in a tax rate of 5%, while Class 4 is a whopping 10%! These rate changes are meant to “incentivize” property owners to clean up and repair blighted properties (Class 4) and lease chronically vacant ones (Class 3).

But here’s the problem. These misclassed real estate rates were historically determined by the District’s Department of Consumer and Regulatory Affairs (DCRA) office, who had latitude in terms of subjective interpretation. However, as of October 1^st, 2022, DCRA no longer exists. It was broken into two different agencies.

These rate changes (and the subsequent appeals) are now handled by Washington, D.C.’s Department of Buildings. Despite this new agency, one of the primary sources of complaint still exists. ANYONE can report a property to the DOB as blighted or vacant.

Out-of-town owners may still find themselves out of the loop in terms of how they are notified. And buyers of properties may not know that this classification applies, leaving them shocked when they receive their first tax bill as the new owner. 

Luckily, there is an appeal process for misclassed real estate. However, the process doesn’t guarantee you’ll receive a revised rate – nor does it guarantee you’ll receive a refund.

That’s why the best offense is a good defense. Regularly check your bills or hire someone to do it for you (ideally someone who knows the market). And if the unfortunate day comes when you are blindsided by a class 3 or 4 rate change? Appeal it immediately!