Capital gains tax in the District of Columbia (2026): selling a business, real estate or farm

The District's rule: no capital gains rate, just a steep income schedule

DC has one table for everyone. The 2026 brackets are 4%, 6%, 6.5%, 8.5%, 9.25% and 9.75%, then 10.75% on taxable income above $1,000,000, and the same thresholds apply whether you file single or jointly (DC Office of Tax and Revenue rate schedule, 2026 D-40ES). A long-term gain gets no discount, so the bulk of a seven-figure sale is taxed at the top rate.

DC once taxed gains on Qualified High Technology Company investments at 3%, but D.C. Law 25-217 repealed that rule in 2024 (DC Code 47-1817.07a), so founders selling DC tech shares now face the regular schedule.

On the federal side, the rates are 0%, 15% and 20% on long-term gain, with 20% above $613,700 of taxable income for joint filers in 2026 (Rev. Proc. 2025-32), and the 3.8% net investment income tax under IRC 1411; see the capital gains hub for the full federal picture.

What the engine shows for a $2.5 million DC sale

For the resident couple in the first example, closing in 2026, the sale adds $512,347 of federal income tax, $95,000 of net investment income tax and $268,750 of DC tax, a total of $876,097, or 35.0% of the gain. The second example is identical except the couple had become Florida domiciliaries first: the total drops to $607,347, a difference of $268,750.

That gap is why DC residents with mostly stock or partnership-interest gains ask about moving. It only works if the move is real and complete before the gain is realized; see changing residency before a sale. Real estate and DC business assets are a different story, covered next.

Why nonresidents owe no DC income tax, and where DC still reaches them

Congress wrote a limit into the Home Rule Act: the Council may not tax the personal income of an individual who is not a DC resident (DC Code 1-206.02(a)(5)). A Maryland or Virginia resident who sells a DC condo owes DC no personal income tax on the gain; their home state taxes it.

The workaround is the unincorporated business franchise tax. It applies to any trade or business carried on by an individual, "whether resident or nonresident," or by a partnership or LLC, at 8.25% of DC taxable income for tax years after 2017 (DC Code 47-1808.01 and 47-1808.03). The D-30 instructions state that taxable income includes gain from the sale of tangible and intangible assets, including real property in DC, even when the sale ends the business. Businesses with DC gross income of $12,000 or less are outside the tax (2025 D-30 instructions).

• Firms where more than 80% of gross income comes from the owners' personal services and capital is not material are excluded, which spares many law, medical and consulting practices (47-1808.01(3)).
• A DC resident does not pay twice on the same dollars: income reported and taxed on a D-30 is subtracted on the individual D-40 (line 11, 2025 D-40 instructions), so the gain bears the 8.25% franchise tax instead of the personal rate.
• An S corporation files the corporate D-20 rather than passing income through, so an S corporation's asset sale is taxed at the entity level in DC (2025 D-40 instructions).

Depreciation: DC never allowed the bonus, so DC recapture differs

The 2025 D-30 instructions direct businesses not to claim IRC 168(k) bonus depreciation, 168(n) qualified production property depreciation, or Section 179 expensing above $25,000, and to recompute depreciation without them. The DC Income and Franchise Tax Conformity Act of 2025 also kept OBBBA's 168(n) and business interest changes out of DC tax. When the asset is sold, the D-30 requires depreciation recapture to be computed on that DC basis.

The practical effect for a seller who took heavy federal bonus depreciation: DC basis is higher than federal basis, so the DC gain on the building or equipment is smaller than the federal gain, even though the DC deductions were slower. The individual D-40 instructions say the same for personally held assets: compute the DC gain in the year of disposition excluding any bonus depreciation. Keep two depreciation ledgers before you negotiate a purchase price allocation or plan around recapture.

Deed recordation and transfer taxes at closing

DC charges two taxes on a deed. The transfer tax is imposed on the transferor at 1.1% of consideration, and the recordation tax is 1.1% as well; each carries an extra 0.35% except on residential property sold for less than $400,000, so most commercial and higher-priced sales pay 1.45% on each side (DC Code 47-903 and 42-1103, 2026). Selling the entity rather than the deed does not escape: a transfer of an economic interest in DC real property is taxed at 2.9% of the consideration allocable to the property (42-1103(a)(2)).

Who pays which tax is negotiable in the contract, but the transfer tax is the seller's by statute. These amounts reduce the amount realized, so they trim the taxable gain. Related reading: capital gains on commercial property.

Installment sales, estate tax and the hold-or-sell question

Because DC starts from federal adjusted gross income, a Section 453 installment sale spreads the DC gain the same way it spreads the federal gain. In DC that can matter more than in flat-tax states: in a year when only $600,000 of gain is recognized, part of it falls in the 9.75% bracket instead of 10.75% (2026 DC table). The buyer's note should be secured, at or above the applicable federal rate, with a seller financing package that includes default and acceleration terms.

DC also keeps an estate tax: estates of residents who die in 2026 file when the gross estate reaches $4,988,400 (Form D-76 instructions, 2026). For an older owner, holding an appreciated building for the step-up at death erases the income tax gain but may leave a DC estate tax bill, so the two need to be modeled together. When you are ready, get the Big Sale Tax Analysis.

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