The DC capital gains tax treats every gain as ordinary income, taxed at rates from 4% to 10.75% depending on your total taxable income. There is no preferential rate for long-term holdings, and the District’s tax stacks on top of whatever you owe the IRS. For a resident selling stock, a rental property, or another appreciated asset, that combination can produce a heavier bite than in most states.
DC Rates and How Gains Stack
DC draws no line between short-term and long-term gains. Whether you held the asset for six months or six years, the profit is added to your wages and other income and taxed at the District’s progressive rates.1Office of Tax and Revenue. DC Individual and Fiduciary Income Tax Rates For tax years beginning after December 31, 2021, the brackets are:
- 4% on taxable income up to $10,000
- 6% on income from $10,001 to $40,000
- 6.5% on income from $40,001 to $60,000
- 8.5% on income from $60,001 to $250,000
- 9.25% on income from $250,001 to $500,000
- 9.75% on income from $500,001 to $1,000,000
- 10.75% on income above $1,000,000
Because gains sit on top of your other income, even a moderate sale can push you into a higher bracket. Someone earning $200,000 in wages who realizes a $100,000 capital gain would pay 8.5% on the first $50,000 of that gain and 9.25% on the remaining $50,000.1Office of Tax and Revenue. DC Individual and Fiduciary Income Tax Rates
Combined Federal and DC Burden
You pay federal capital gains tax and DC income tax on the same gain. Federal long-term rates (for assets held longer than a year) are 0%, 15%, or 20% depending on income. Short-term gains are taxed at ordinary federal rates. High earners also owe the 3.8% Net Investment Income Tax.
DC then adds its layer at ordinary rates. For a high-income resident realizing a large long-term gain, the combined marginal rate on the top slice can exceed 34%: 20% federal, plus 3.8% NIIT, plus 10.75% DC. That is where the absence of a preferential DC long-term rate hurts most. In a state with a lower rate on long-term gains, or no tax on investment income at all, the same sale would cost significantly less.
Calculating the Gain
Your gain is the sale price, minus selling expenses, minus your adjusted basis. Basis starts with what you paid, including transaction costs like broker commissions or closing fees. For real estate, add capital improvements and subtract any depreciation claimed on a rental.
DC uses the same basis rules as the IRS. You compute the gain on your federal return and transfer the result to your DC return.2Office of Tax and Revenue. District of Columbia D-40 Individual Income Tax Forms and Instructions
Inherited property receives a stepped-up basis equal to the asset’s fair market value on the date of the prior owner’s death. If a parent bought stock for $20,000 and it was worth $200,000 when they died, your basis is $200,000, and you owe tax only on appreciation above that amount. DC recognizes the federal step-up.
Home Sale Exclusion
DC follows the federal Section 121 exclusion for your primary residence. A single filer can exclude up to $250,000 of gain; a married couple filing jointly can exclude up to $500,000.3Office of the Law Revision Counsel. 26 U.S. Code 121 – Exclusion of Gain from Sale of Principal Residence You qualify if you owned and used the home as your main residence for at least two of the five years before the sale.
The exclusion applies to both returns. Given DC prices, many sellers see gains that fall entirely inside the exclusion and owe nothing. If your gain exceeds the threshold, only the excess is taxable. A married couple selling a home with $650,000 of appreciation would owe DC tax on $150,000.
Deferring Gain on Investment Property
A Section 1031 like-kind exchange lets you defer the gain on investment or business real estate by swapping into a property of similar character. You must identify replacement property within 45 days and close within 180 days.4Office of the Law Revision Counsel. 26 U.S. Code 1031 – Exchange of Real Property Held for Productive Use or Investment Since the 2017 tax law changes, the deferral applies only to real property, not stocks or equipment. Because DC starts from your federal AGI, a properly structured 1031 exchange defers the gain for DC purposes as well. The gain is not erased; it is embedded in the lower basis of the replacement property.
Opportunity Zone Investments
DC created its own Opportunity Zone incentive under D.C. Act 23-407, adding local benefits on top of the federal program for investments in Mayor-approved Qualified Opportunity Funds operating within designated DC zones.5DC Opportunity Zone Marketplace. District Qualified Opportunity Fund The QOF must receive annual approval from the Mayor’s office for each year the investor claims benefits.
The federal program lets you defer a recognized gain by reinvesting it in a QOF within 180 days, but any deferred gain must be recognized no later than December 31, 2026, whether or not you have sold the QOF interest.6Internal Revenue Service. Opportunity Zones Frequently Asked Questions What remains fully intact is the permanent exclusion of appreciation inside the fund: hold a QOF interest for at least ten years, and any gain on the QOF investment itself (separate from the original deferred gain) is excluded from tax at both the federal and DC levels.7Office of the Deputy Mayor for Planning and Economic Development. Opportunity Zones in Washington, DC
Capital Losses
When losses exceed gains for the year, DC follows the federal rule: you can deduct up to $3,000 of the net loss against other income, or $1,500 if you are married filing separately.2Office of Tax and Revenue. District of Columbia D-40 Individual Income Tax Forms and Instructions Unused losses carry forward indefinitely, keeping their short-term or long-term character, and offset future gains dollar for dollar. Once gains are exhausted, you can still take up to $3,000 per year against ordinary income. That $3,000 cap has not been adjusted for inflation since 1978, so a large loss can take many years to absorb.
Filing, Estimated Payments, and Penalties
Residents report capital gains on Form D-40, due April 15.8Office of Tax and Revenue. Individual Income Tax Forms There is no separate DC schedule for gains. You compute the gain or loss on the federal Schedule D and enter the result on Line c of the D-40. Adjustments for differences between federal and DC law, such as DC-level Opportunity Zone benefits, go on Schedule I.2Office of Tax and Revenue. District of Columbia D-40 Individual Income Tax Forms and Instructions
If you expect your DC tax liability to exceed $100 after withholding, you must make quarterly estimated payments on Form D-40ES. The due dates are April 15, June 15, September 15, and January 15.9Office of Tax and Revenue. Underpayment of Estimated Tax Interest This catches a lot of people who sell a large asset mid-year. Employer withholding will not account for the gain, and skipping estimated payments produces underpayment penalties at filing time.
DC charges interest at 10% per year, compounded daily, on any tax not paid by the due date. A 5% per month penalty also applies to unpaid balances for each month or partial month the tax stays outstanding.10DC Office of Tax and Revenue. FR-127 Extension of Time to File a DC Income Tax Return Worksheet These add up quickly. Filing for an extension gives you more time to submit the return, but it does not extend the payment deadline.