Washington DC Capital Gains Tax, Explained

The federal system rewards patience: hold an asset over a year and your rate drops to 0%, 15%, or 20%. DC ignores the holding period entirely. Every dollar of gain, whether it's stock held for a decade or a flip held for two months, lands on your DC return as ordinary income and climbs the same graduated bracket ladder as your salary.

DC runs seven brackets, from 4% on the first $10,000 of taxable income up to 10.75% on taxable income over $1,000,000. Unlike most states, DC does not widen its brackets for married couples filing jointly, so a household's combined income and gain climb the identical ladder a single filer would. Most working professionals with a meaningful capital gain land in the 8.5% bracket, which covers a wide span from $60,000 to $250,000, but a large one-time gain, a business sale, a concentrated stock position, an inherited property, can push a household into the 9.25%, 9.75%, or 10.75% bands for that year alone.

If you're reading this because you searched for a DC tax break on startup stock, you found the right topic, but the answer has changed. DC built one of the more aggressive state-level tech incentive programs in the country around its Qualified High Technology Company (QHTC) designation, and for years that program included a real capital gains benefit modeled loosely on the federal QSBS idea: hold stock or a partnership interest in a qualifying DC tech company long enough, and the gain on sale got a preferential DC rate.

Under DC Code Section 47-1817.07a, qualified capital gain from qualified stock or a qualified partnership interest in a QHTC, generally an investment acquired for cash after December 31, 2000 in a company that qualified as a QHTC at issuance and stayed qualified through substantially all of the holding period, got taxed at a reduced 3% DC rate instead of the standard business rate, once the investment had been held more than 5 years. A qualifying company generally needed a base of operations in DC and income derived from technology-related activity, following the broader QHTC definition used for DC's wage credits and other tech incentives.

That benefit is no longer available. DC first suspended the capital gains relief for tax years 2020 through 2024 as part of the FY 2021 Budget Support Act, then permanently repealed it effective October 1, 2024 through the FY 2025 Budget Support Act. If you sell a QHTC investment today, even one you have held well past five years in a company that still qualifies as a QHTC, the gain is taxed at DC's regular graduated rates like any other capital gain. There is no rate reduction and no exclusion tied to the holding period anymore.

The corporate-level QHTC incentives that remain, wage and hiring tax credits, and a reduction in real property tax on qualifying leasehold improvements, are unaffected by this repeal. It's specifically the investor-facing capital gains piece that's gone.

DC's tax stacks on top of, not instead of, the federal capital gains system. Long-term gains still get the federal 0%, 15%, or 20% rate depending on total taxable income, and the 3.8% Net Investment Income Tax applies once modified adjusted gross income clears $200,000 for single filers or $250,000 for married filing jointly. Short-term gains, held one year or less, get no discount at any level: ordinary federal brackets up to 37%, plus DC's ordinary brackets up to 10.75%.

Put the full stack together for a top-bracket DC seller: up to 10.75% DC, plus up to 20% federal long-term capital gains tax, plus 3.8% NIIT, approaching a combined 34% to 35% of the gain. That's a meaningfully lighter load than New York City's roughly 40%-plus combined stack, since DC has no separate local layer on top of its state-equivalent tax, but it is still one of the higher all-in combinations in the country for a large one-time sale.

A rental sale in DC has the same federal layering as anywhere else: depreciation claimed over the years comes back as recapture at up to 25% federally, and the rest of the gain gets long-term treatment. DC doesn't run a separate recapture rate; the whole gain, recapture included, is DC ordinary income at the regular graduated brackets above.

DC real estate is always DC-source income, regardless of where you live when you sell it. Nonresident sellers owe DC tax on the gain and generally need to address it through a DC nonresident filing, though DC does not run the kind of mandatory estimated-payment-at-closing system that New York and Maryland use for out-of-state sellers of local real property. That makes it easier to overlook, not smaller. If you're selling DC real estate from out of state, get the DC liability modeled before closing rather than assuming it works itself out at filing time.

A 1031 exchange works the same way here as federally: gain deferred on the federal return generally stays out of your DC income for the year of the exchange too, since DC starts from your federal figures.

A large share of the people who work in DC don't live there. Reciprocity agreements across the DC-Maryland-Virginia area mostly settle where your paycheck is taxed. They generally don't extend to investment income. Capital gains on stock, crypto, and most intangibles are taxed by your state of residence on the date you sell, not by where you commute for work.

In practice that means a Maryland or Virginia resident who works in downtown DC still owes their home state's full capital gains treatment, not DC's, on a stock or business sale, with no offset just because the salary was earned in the District. The one exception runs the other way: DC-situated real estate stays DC-source income regardless of where the seller lives when the deal closes.

If you're weighing a move across the district line before a large sale, or trying to figure out which of the three jurisdictions actually taxes a specific gain, see our Maryland capital gains guide and Virginia capital gains guide for the other two legs of the DMV stack.