Washington DC Tax Changes for Fiscal Year 2026
The District of Columbia Office of Tax and Revenue (OTR) has announced a series of tax changes effective October 1, 2025, and throughout fiscal year 2026 . These changes, enacted through the Fiscal Year 2026 Budget Support Amendment Act, affect individuals, businesses, and consumers across the District.
For DC residents, businesses, and tax professionals, understanding these changes is essential for accurate tax planning and compliance. This guide provides a comprehensive overview of the key changes.
Sales and Use Tax Changes
General Sales Tax Rate
The general sales tax rate on tangible personal property, digital goods, and taxable services will remain at 6.0% through September 30, 2026. Beginning October 1, 2026, the rate will increase to 7.0% .
This delayed increase gives businesses time to prepare for the change, including updating point-of-sale systems and adjusting pricing strategies.
Specific Rate Changes
Several specific sales tax changes are also taking effect:
Commercial Bingo: Beginning October 1, 2025, gross receipts from commercial bingo will be subject to sales tax at 7.5%
Transient Accommodations: The temporary increase in the sales tax rate on hotel rooms and other transient accommodations to 15.95% has been extended through September 2027
Food and Beverage: Sales of food or drink prepared for immediate consumption are subject to tax at 10%
Vehicle Rentals: Sales or charges for the rental of motor vehicles and utility trailers are now taxed at 10.25%
Individual Income Tax Changes
The Budget Support Act includes several adjustments to individual income tax provisions. Taxpayers should review their withholding and estimated tax payments to ensure they reflect the current tax structure.
Estate Tax Exclusion Increase
For estates of decedents who die on or after January 1, 2026, and on or before December 31, 2026, the estate tax exclusion (zero bracket) amount is increased to $4,988,400 . This adjustment reflects inflation and provides relief for smaller estates.
Cigarette and Tobacco Tax Increases
The District has increased taxes on tobacco products:
Cigarettes: The total cigarette tax increased from $5.03 to **$5.07 per package of 20 cigarettes**
Other Tobacco: The tax rate on other tobacco products is 64% of wholesale sales, and the rate for little cigars increased to $0.2535 per little cigar
Motor Fuel Tax Adjustment
The motor fuel surcharge increased from $0.118 to **$0.122 per gallon** on the sale of gasoline, gasohol, and other motor vehicle fuel . This surcharge is in addition to the base tax of $0.235 per gallon.
Recordation Tax Relief for First-Time Homebuyers
For first-time homebuyers, the cap on the purchase price for a residential property eligible for the reduced rate of recordation tax is increased from $753,000 to **$777,000** for tax year 2026 . Income ceilings for eligible households are also increased.
Real Property Tax
The Tax Year 2026 special real property tax rate for certain properties is set at 23.4% .
How Nova Tax & Accounting Services Can Help
At Nova Tax & Accounting Services, we help DC residents and businesses navigate the District’s complex tax landscape. Our team provides tax preparation, planning, and compliance services tailored to the unique rules of Washington DC. For more information, visit https://novataxservices.com/ or schedule a consultation.
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