By Denis Del Bene, JD, LL.M., Checkpoint News
On December 20, 2025, the District of Columbia enacted without the Mayor’s signature the “D.C. Income and Franchise Tax Conformity and Revision Temporary Amendment Act of 2025,” which will be sent to Congress for review. The legislation generally mirrors previously enacted emergency legislation (Act 26-214). The temporary legislation: (1) decouples from full expensing of domestic research and experimental expenditures under IRC § 174A; (2) amends conformity to the business interest deduction limitation under IRC § 163(j); (3) decouples from the special depreciation election for qualified production property under IRC § 168(n); (4) for personal income tax purposes, amends the standard deduction and repeals personal exemptions; (5) for personal income tax purposes, decouples from the federal deductions for tips, overtime compensation, and personal car loan interest, the enhanced senior deduction, the non-itemizers charitable deduction for individuals, and the qualified small business stock gain exclusion; (6) restores and amends the D.C. child tax credit; (7) reduces the D.C. child and dependent care credit; and (8) increases the D.C. earned income credit. The legislation also makes other conforming and technical statutory changes. The temporary legislation expires 225 days after taking effect. (L. 2025, B458 (Act 26-217), effective after a 30-day period of Congressional review and publication in the D.C. Register and applicable as of 01/01/2025 unless otherwise provided.)
D.C. Decouples from Full Expensing of Domestic Research and Experimental Expenditures Under IRC §174A.
The legislation provides that, for tax years beginning after December 31, 2021, the deduction allowed for domestic research and experimental expenditures under IRC § 174A must be: (1) charged to the capital account; and (2) allowed as an amortization deduction ratably over the 5-year period beginning with the midpoint of the tax year in which the expenditures are paid or incurred.
The legislation further provides that: (1) Taxpayers will not be allowed the election to amend a tax return under IRC § 174A(f)(1). This election allows qualified small businesses (average annual gross receipts of $31 million or less) to apply immediate expensing retroactively to tax years after December 31, 2021. (2) Taxpayers will not be allowed the election under IRC § 174A(f)(2). This election would allow taxpayers who capitalized domestic R&E from 2022-2024 to deduct remaining unamortized amounts over one or two years starting in the first tax year after December 31, 2024.
Conformity to Business Interest Deduction Limitation Under IRC §163J Amended
The legislation provides that, in computing the limitation on business interest under IRC § 163, “adjusted taxable income” means the adjusted taxable income determined under IRC § 163(j)(8)(A) except, that IRC § 163(j)(8)(A)(v) does not apply. Under IRC § 163(j)(8)(A)(v), “adjusted taxable income” is computed without regard to deductions allowed for depreciation, amortization, or depletion. The legislation also provides that, in computing the limitation on business interest under IRC § 163, “floor plan financing interest,” as defined under IRC § 163(j)(9) does not apply.
D.C. Decouples from Special Depreciation Election for Qualified Production Property
The legislation provides that no deduction is allowed for the special depreciation allowance under IRC § 168(n) (100% depreciation election for qualified production property (QPP).)
Personal Income Tax: Standard Deduction Amended
Under current law, the District’s standard deduction is the standard deduction under IRC § 63(c). The temporary legislation provides that, for tax years beginning after December 31, 2024, the District’s standard deduction is the “basic standard deduction” plus any additional deduction allowed for the aged and blind under IRC § 63(c)(3). For the tax year ending December 31, 2025, the ” basic standard deduction” amount is: $15,000 for a single individual or married individual filing a separate return; $22,500 for a head of household; and $30,000 for married individuals filing a joint return, separate on a combined return, or a surviving spouse. For tax years beginning after December 31, 2025, these amounts will be increased annually pursuant to a cost-of-living adjustment.
Personal Exemptions Repealed
The legislation repeals D.C. Code Ann. §47-1806.02 under which residents are allowed personal exemptions as deductions in computing their taxable income.
D.C. Decouples from Federal Deductions for Tips, Overtime Compensation, Personal Car Loan Interest and Enhanced Senior Deduction
The legislation provides that no deductions will be allowed for the following:
- Any deduction allowed for qualified tips under IRC § 224.
- Any deduction allowed for qualified overtime compensation under IRC § 225.
- Any deduction for personal car loan interest allowed under IRC § 163(h)(4).
- Any deduction for the enhanced senior deduction allowed under IRC § 151(d)(5)(C).
D.C. Decouples from Non-Itemizers Charitable Deduction for Individuals
For tax years beginning after December 31, 2024, individuals, estates, and trusts who did not elect to itemize must include in D.C. gross income any income deducted or otherwise excluded pursuant to IRC § 170(p) for that tax year.
D.C. Decouples from Qualified Small Business Stock Gain Exclusion
For tax years beginning after December 31, 2024, individuals, estates, and trusts must include any income or gain excluded from their federal gross income pursuant to IRC § 1202(a) for that tax year.
D.C. Child Tax Credit Restored
The legislation restores and amends the previously repealed D.C. child tax credit. For tax years beginning after December 31, 2025, a refundable credit against income tax is available for each qualifying child of the taxpayer for which the taxpayer is allowed a deduction under IRC § 151. A “qualifying child” has the same meaning as under IRC § 152(c). For the tax year beginning January 1, 2026, the amount of the credit will be $1,000 for each qualifying child who has not reached the age of 18 years by December 31, 2025. For tax years beginning after December 31, 2026, the amount of the credit will be $1,000 for each qualifying child who has not reached the age of 18 years by December 31 of the tax year, and the credit amount will be increased annually by a cost-of-living adjustment.
A taxpayer is not eligible to receive a credit if: (1) the taxpayer does not claim the qualifying child as a dependent on the taxpayer’s federal and District income tax returns for that tax year; or (2) the taxpayer was not a resident of the District for the entire calendar year preceding the year in which a claim for this credit is filed. The amount of the credit is reduced by $50 for each $1,000 by which the taxpayer’s adjusted gross income exceeds a threshold amount: (1) $55,000 in the case of an unmarried individual filing as single, head of household, or qualifying widow(er); (2) $70,000 in the case of married individuals or registered domestic partners filing either jointly or separately on a combined return; and (3) $35,000 in the case of an individual filing as married filing separately. For tax years beginning after December 31, 2026, these amounts are increased annually pursuant to a cost-of-living adjustment.
D.C. Child and Dependent Care Credit Reduced
The legislation provides that, for returns filed for a full calendar or fiscal year beginning after December 31, 2025, an individual who incurs household and dependent care services necessary to engage in gainful employment, and who is allowed a federal credit under IRC § 21, can claim a credit equal to 24.25% (previously 32%) of the federal credit.
Increase in D.C. Earned Income Credit Accelerated
The legislation provides that, for returns filed for a full calendar or fiscal year beginning after December 31, 2024, the credit equals 100% (previously 85%) of the federal earned income tax credit allowed under IRC § 32. Previously, the D.C. earned income tax credit was not scheduled to increase to 100% of the federal tax credit until tax years beginning after December 31, 2028.
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