StructuredSales.org
StructuredSales.org
The District is a small map with expensive exits. A Capitol Hill couple may hold a Shaw commercial condominium in their own names. A Bethesda family may hold a Columbia Heights walk-up inside an LLC. A K Street practice may be selling goodwill that is mostly personal. Those three sales do not land on the same return, and the individual rate table is only one of the bills.
The District has no preferential long-term rate and no wider brackets for a married couple. Taxable income over $1 million is taxed at 10.75% on every filing status. This page covers that table, the 8.25% franchise tax on many building sales, and how a structured installment sale under IRC §453 changes the year the income is recognized. It is education, not a quote of tax.
The Office of Tax and Revenue publishes a single individual rate schedule for tax years beginning after December 31, 2021. The 2026 D.C. Tax Facts report, which uses rates in effect on January 1, 2026, prints the same schedule. On taxable income the tax is 4% of the first $10,000, then $400 plus 6% of the excess over $10,000, then $2,200 plus 6.5% over $40,000, then $3,500 plus 8.5% over $60,000, then $19,650 plus 9.25% over $250,000, then $42,775 plus 9.75% over $500,000, and $91,525 plus 10.75% of the excess over $1,000,000.
Capital gain sits in that taxable income. A longer holding period does not lower the District rate. Federal long-term rates of 0%, 15%, and 20%, and the 3.8% net investment income tax, sit on top. For 2026, on a joint return, 15% applies until taxable income passes $613,700 and 20% applies above that, under Revenue Procedure 2025-32. The net investment income tax still uses $250,000 of modified adjusted gross income for joint filers and $200,000 for single filers. Those federal thresholds are not indexed. A couple does not get two $1 million District thresholds.
The individual tax reaches a person domiciled in the District at any time during the year, or who keeps an abode here for 183 days or more. Moving to Arlington in March while keeping a Kalorama apartment can leave you a statutory resident. Domicile is where you live, not where the mail is forwarded.
Many buildings never reach that individual table. Partnerships, LLCs taxed as partnerships, and sole proprietorships pay the unincorporated business franchise tax. Tax Facts puts the rate at 8.25% as of January 1, 2026. Renting property is a trade or business for this tax. Gross income of $12,000 or less is outside it. The minimum tax is $250, or $1,000 if D.C. gross receipts exceed $1 million. Owners may claim a salary allowance, and a $5,000 exemption comes off the base. A business can be exempt when more than 80% of gross income is personal services by the members and capital is not a material income-producing factor.
Until tax years beginning in 2021, gain that ended a business could fall outside the franchise tax, and nonresident owners then owed no individual D.C. tax. The D-30 instructions now say taxable income includes gain on D.C. assets, including real property, even when the sale terminates the business. A Maryland or Virginia family with one D.C. rental inside an LLC should not assume the exit is invisible. Our Maryland guide covers the county tax across the line. A sale of C corporation stock is different: a resident shareholder reports it on the individual return.
The 2025 D-40 instructions say the District does not follow several One Big Beautiful Bill Act changes, including the federal change excluding more gain on small-business stock. If a deal model treats the expanded qualified-small-business-stock exclusion as free of D.C. tax, the preparer has to measure the add-back. Installment timing does not erase an add-back.
For a resident, District income starts from federal income. Gain reported on Form 6252 under IRC §453 is generally District income in the same year. Each payment is part basis, part gain, and part interest, and only the gain runs through the brackets. Because the rates step up, a slice can stay in the 9.25% band while a lump sum crosses 9.75% and 10.75%. The franchise-tax return is a separate form. Ask a D.C. preparer how a D-30 picks up installment gain before you assume the same timing.
Federal limits still apply. Recapture that is ordinary income under §1245 or §1250 is taxed in the year of sale even if the price is deferred. Unrecaptured §1250 gain can be reported as payments arrive. If installment obligations from the year, still open at year-end, exceed $5 million, §453A charges interest on the deferred federal tax. A related-party resale within two years, and a sale of depreciable property to a controlled entity, have their own rules under §453(e) and §453(g). The deferred price has to be assigned before you receive it. Our tax-treatment guide covers that paperwork.
What sells here is buildings and practices, not farmland. Row-house rentals often carry basis from a 1990s purchase or an old step-up. A primary residence may still have gain above the §121 exclusion; only that remainder can be spread. See selling a home with gain over $500,000 and the practice-sale guide for goodwill. The illustration below is a resident couple who own a condominium personally. It is not a franchise-tax return.
Take a married couple, D.C. residents, with $80,000 of other taxable income. They sell a commercial condominium near Shaw for $2,150,000. Adjusted basis is $350,000. Long-term gain is $1,800,000, and that figure is what remains after any year-of-sale depreciation recapture has been paid. They compare recognizing all of the gain in the year of sale with eight equal annual slices of $225,000. The deferred obligation is under the $5 million §453A threshold. Interest credited on the payment stream is ignored, because that interest is ordinary income taxed when it arrives, on top of the gain.
District tax uses the rate table above. Federal tax uses 2026 married-filing-jointly long-term brackets and the 3.8% net investment income tax, treating modified adjusted gross income as the $80,000 plus the gain recognized that year. The sketch starts from taxable income, so it does not re-run the standard deduction, itemized deductions, or credits. It is an estimate of tax on the gain, not a return and not a projection of cash in your pocket.
| Lump sum | Eight installments | |
|---|---|---|
| Gain recognized | $1,800,000 in one year | $225,000 a year |
| Taxable income that year | $1,880,000 | $305,000 |
| D.C. tax on the gain | $180,925 | $156,300 |
| Federal long-term capital gain tax | $330,480 | $247,320 |
| Federal 3.8% net investment income tax | $61,940 | $16,720 |
| Combined tax on the gain | $573,345 | $420,340 |
Under these assumptions the combined tax on the gain is about $153,000 lower, and only about $24,600 of that difference is District tax. The rest is federal. The District piece exists because each installment year — $305,000 of taxable income — stays in the 9.25% band, while the lump sum is taxed partly at 9.75% and 10.75%, and a joint return does not get a second set of brackets. Each installment year also stays under the $613,700 federal breakpoint for the 20% rate. A different basis, a high-income year, leftover recapture, or a franchise-tax filing would move the result. The calculator is a start. It is not a promise of savings.
These are estimates of tax on the gain only. They omit interest income on the payments, the time value of money, credits, and any unincorporated-business franchise tax. They are not a promise of savings.
Bring the entity chart. An LLC starts on the franchise return. A residence starts with §121. A practice starts with who owns the goodwill. Weigh a sale against a step-up with the sell-or-hold guide and your estate lawyer. The installment sentence has to be in the contract before closing. After you deposit the proceeds, §453 does not reopen.
No. Capital gain is ordinary income on the individual return. The Office of Tax and Revenue uses one rate table for every filing status: 4% on the first $10,000, then 6%, 6.5%, 8.5%, 9.25%, 9.75%, and 10.75% on taxable income over $1,000,000. Those dollar thresholds are not wider for a joint return.
The individual income tax reaches people who are domiciled in the District or who keep an abode here for 183 days or more. A real change of domicile can take later years off the D-40. Keeping a D.C. apartment and spending half the year in it can leave you a statutory resident. Gain inside an unincorporated business that owns D.C. property can still face the franchise tax even when the owners live elsewhere. Have a D.C. advisor test domicile and entity form before you assume a move ended the tax.
That is the unincorporated business franchise tax, not the individual bracket table. Partnerships, LLCs taxed as partnerships, and sole proprietorships doing business in the District, including many rental buildings, pay 8.25% on D.C. taxable income. Since 2021, gain on D.C. real property is in that tax even when the sale ends the business. A salary allowance and a small exemption can reduce the base. Some personal-service businesses are exempt. A sale of C corporation stock is a different return: the shareholder's individual D-40.
For a resident individual, the District starts from federal income, so gain reported on the installment method is generally District income in the same years. Depreciation recapture under section 1245 is still taxed in the year of sale. The franchise-tax return for an LLC or partnership is a separate computation; confirm with a D.C. preparer how that return picks up installment gain before you count on the same timing.
Do not assume it does. The 2025 D-40 instructions say the District does not recognize several One Big Beautiful Bill Act changes, including the federal change excluding additional capital gain on small-business stock. A seller who is counting on the expanded federal qualified-small-business-stock exclusion needs a D.C. preparer to measure the District add-back. This page is not that computation.
Last reviewed: October 22, 2026.
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