10-Year-Tax Abatement: A Super Brief Guide!

You may hear people talking about a 10 year tax abatement, and perhaps you’re wondering what it is and how it can help YOU as you prepare to purchase, remodel or construct a home. Here’s a quick breakdown for you!

What is a 10-year-tax-abatement? So you have a house, or a piece of land, right? And the more you build/improve on the home, the higher the value of the home becomes. In most areas, you would start paying taxes on the increased value when it occurred. BUT, with a 10 year tax abatement, all improvements and increased value of the home go untaxed for 10 years once the improvements are done! So if you purchased/built a new construction home with a tax abatement, you would only pay for the value of the land, nothing else. And yes, that does mean that after those 10 years, your taxes would increase significantly, but hey, 10 years is better than 0, right?

When did the Philadelphia tax abatement begin?  We met the tax abatement in the early 2000’s, and there was an immediate increase in new construction right after! From 2002-2004, new construction increased by 417%, compared to only 1.2$ in the suburbs!

What’s the benefit of a 10 year tax abatement? Everyone! Developers, home owners, home buyers and Philadelphia in general!

Phillytaxabatement.com has a great scenario to explain: “Simply put: if you make physical improvements to a piece of real estate in Philadelphia, you don’t have to pay additional taxes on the value of those improvements for ten years. For example, if you remodel your kitchen, and the City’s assessors determine that this remodel increases the value of your home by $25,000, you don’t pay taxes on that $25,000 until after ten years.

For new construction, the benefit can be quite substantial. Since a structure typically represents 80-90% of the property’s total value (with land representing the remaining 10-20%), the entire structure represents an improvement to the property. As such, the owner of a newly built and abated property only pays taxes on the value of the land for the first ten years after the property has been developed. Consequently, their tax bill is only 10-20% of what it would be otherwise; a significant break.

While critics of the Abatement like to portray this break as unfair, they ignore the fact that the Abatement encourages new construction and rehabilitation of properties in many Philadelphia neighborhoods. The Abatement has worked to revitalize communities, provide well-paying construction jobs, attract and retain residents, attract home- and business-owners to the city of Philadelphia, and reduce development costs for commercial and residential projects.”

So there you go! A tax abatement can be a wonderful incentive for purchasers, buyers, etc. So if you see a home with years left on the tax abatement, check it out! It’s a pretty exciting Philly perk.

Moving? Know the value of your home …