District of Columbia
Reviewed July 2026Federal §453 conformity
Yes — the District starts from the federal return and taxes residents' installment gain as payments arrive, at rates reaching 10.75%. But DC inverts nearly every rule this site teaches elsewhere, twice. First: federal law forbids the District from taxing nonresidents' income, so the sourcing chapter that dominates every state page simply doesn't exist for individuals here. Second: DC does not recognize S corporation elections — an S corporation doing business in the District pays DC's corporate franchise tax like any C corporation, deferral method and all. The individual layer runs on residency; the entity layer runs on its own track.
Nonresident sourcing
For individuals, there is nothing to source: a nonresident selling a District business or District real estate owes no DC individual income tax on the gain — full stop, by act of Congress. The catch sits one level down: the business itself may owe DC tax. An unincorporated business operating in the District pays the UBT on its income, and a corporation (including an S corporation) pays the franchise tax — so the deal's DC cost is computed at the entity, not the owner.
Withholding
No closing-table withholding applies to nonresident sellers of District real estate, and with nonresidents outside the individual tax entirely, the compliance story is the entity's: UBT or franchise tax filings for each year the entity recognizes gain.
Selling, then moving (residency change)
Here residency is the whole game. A District resident owes DC tax on installment payments as they arrive; the day the seller genuinely becomes a Virginia or Maryland resident, DC's claim on future payments ends — even for gain from a District business — because DC cannot tax nonresidents. That makes the DC-to-suburbs move uniquely potent compared with every state on this map, and it makes the year-of-sale residency facts worth documenting to a litigation standard. Statutory residency (183 days plus a DC abode) is the trap for those who keep the pied-à-terre.
Pass-through entity (PTE) tax election
There is no PTE election and no need for the usual workaround architecture: DC's unincorporated business tax and its corporate treatment of S corporations already put tax at the entity level for most operating businesses — with the federal deduction that entails — while resident owners credit the UBT-taxed income against their DC returns through an exclusion mechanism. The planning is about which entity-level regime applies and what the professional-services exemption covers, not about electing in.
Estate and IRD
The District's estate tax starts around $4.9 million (indexed) with rates to 16%, and the note counts at its value. No inheritance tax applies. The federal rules govern the income side — heirs pay tax as payments arrive — with DC's claim on those payments again following the heir's residency, not the gain's origin.
Planning notes
The District's list: work out which entity-level tax the deal touches — UBT, corporate franchise on an S corporation, or the professional-services exemption — before modeling anything at the owner level; treat residency as the single decisive individual-level fact, documented accordingly; and run the estate projection against the roughly $4.9 million line for District-domiciled sellers.
The District taxes S corporations as regular corporations — 8.25% franchise tax on DC-apportioned income, including installment gain the company recognizes. Deal models that assume pass-through treatment need a DC column of their own.
Federal law bars DC from taxing nonresidents, so a genuine move to Virginia or Maryland ends DC's claim on future installment payments entirely — even for gain from a District business. No state on this map offers that; document the move like it's worth what it is.
Educational information, current as of the July 2026 review. State law changes; confirm treatment with a qualified advisor before structuring a transaction.
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