District of Columbia Takes Emergency Action to Curb OBBBA-Related Revenue Loss

The District of Columbia has enacted emergency legislation (A26-0214) to counteract potential revenue losses from conformity to various tax law provisions in the One Big Beautiful Bill Act (OBBBA). 

The act was transmitted to D.C. Mayor Muriel Bowser and it took effect December 3 without her signature. Under D.C. law, emergency legislation cannot be in effect for more than 90 days; A26-0214 will expire March 3, 2026. Under the District’s unique legislative process, laws are subject to a mandatory 30-day review by Congress. On December 2, the Council of District of Columbia sent an identical temporary bill to Bowser. Once Bowser signs the legislation, it will be sent for congressional review. However, to make the provisions of A26-0214 effective beyond the District’s 225-day limit for temporary legislation, the District will need to pass a permanent bill. 

In its September revenue estimate, the D.C. Office of the Chief Financial Officer forecast that the OBBBA changes would reduce District revenue by $94.4 million in fiscal 2025 and $171.6 million in fiscal 2026. While the office said the OBBBA’s fiscal impact was “more than offset” by increased revenue, it noted that the increases stem mainly from volatile revenue sources that reduce the stability of the District’s revenue streams and economic base.

The District has chosen to decouple from 13 OBBBA tax-related modifications the Council dubbed “higher-ticket items,” including those addressing research and development (R&D) expensing; business expense limitations; and the standard deduction; as well as deductions for tip and overtime wages, qualified business income, seniors and expanding the child credit. The Council based its choices on both revenue impact and administrative burden. The new rules apply as of January 1, 2025, unless otherwise provided. 

Corporate Provisions

A26-0214 decouples from the OBBBA’s changes to Sections 163(j), 168(k), and 174.

• Section 163(j): Business interest expense will continue to be subject to limitations, including that based on adjusted taxable income. 
  • The District’s approach to decoupling is unique. Other jurisdictions have decoupled by requiring taxpayers to use the Section 163(j) version that existed on December 31, 2024. D.C. has conformed to the OBBBA version of Section 163(j), aside from two specific subparagraphs: those on the depreciation/amortization addback to adjusted taxable income and the treatment of floor plan financing interest.
• Section 168(k): The bill disallows the section’s special depreciation allowance.
• Section 163(n): The District will not allow first-year expensing for investment in qualified production property; the property must be amortized or depreciated as required under federal law in effect before passage of the OBBBA.
• Section 174: Companies cannot amend their returns to account for full R&D expensing in the year costs are incurred.

In a memorandum to Council chair Phil Mendelson, D.C. CFO Glen Lee estimated that decoupling from those provisions would increase the District’s fiscal 2026 revenue by $100 million.

Individual Provisions

For tax year 2025, A26-0214 lowers the basic standard deduction for individual taxpayers to $15,000 and married taxpayers to $30,000. The OBBBA set those deductions at $15,570 and $31,500, respectively. The D.C. legislation increases the deduction amounts by an annual cost-of-living adjustment.

Surprisingly, the emergency legislation eliminates the deduction for tip and overtime income, one of the few items to receive bipartisan support during OBBBA negotiations. It also eliminates deductions for seniors, personal car loan interest, and qualified business income and makes changes to filings by nonresidents. 

For tax years after December 31, 2025, the child tax credit in the District is $1,000 per qualifying child. The OBBBA set that credit at $2,200 for tax years 2025 and beyond.

According to Lee’s memo, decoupling from those individual OBBBA changes would increase fiscal 2026 revenue by almost $79 million. 

Insights

• Because the emergency legislation expires before the end of the filing season for tax year 2025, taxpayers should prepare for action by Bowser or the District Council, either in the form of temporary or permanent legislation.
• The District joins a growing list of states that are issuing emergency or special legislation to decouple with parts of the OBBBA.  (See our related Alerts on Colorado, Maryland, and Michigan, as well as our Alert on multistate conformity planning considerations.)