What Is a Property Tax Abatement?
A property tax abatement is a temporary reduction or elimination of property taxes granted by a local government, typically to encourage specific activities like new construction, renovation of existing buildings, or development in targeted areas. Unlike exemptions (which are permanent as long as you qualify), abatements are time-limited, usually lasting five to fifteen years. They can save homeowners tens of thousands of dollars over the abatement period.
Abatement programs exist in cities and counties across the country, though they are most common in urban areas seeking to encourage development or attract residents to specific neighborhoods.
Types of Abatement Programs
New Construction Abatements
Many cities offer abatements for newly constructed homes or buildings. The abatement typically applies to the improvement value only (the building, not the land), freezing or reducing taxes on the structure for a set period. This incentivizes builders and buyers to invest in new development.
Cities with notable new construction abatement programs include Philadelphia, Cleveland, Milwaukee, Kansas City, Indianapolis, and parts of New York City.
Renovation and Rehabilitation Abatements
Designed to encourage investment in aging housing stock, these programs abate the increase in assessed value that results from renovations. If you spend fifty thousand dollars renovating a home and the assessed value rises accordingly, the abatement prevents your taxes from increasing based on that improvement.
Targeted Area Abatements
Some jurisdictions offer abatements in designated zones: enterprise zones, opportunity zones, community reinvestment areas, or historic districts. These encourage development in areas the government has identified as needing investment.
Major Abatement Programs by City
| City | Program | Duration | Benefit |
|---|---|---|---|
| Philadelphia | 10-Year Tax Abatement | 10 years | Abates improvement value on new construction/rehab |
| Cleveland | Residential Tax Abatement | 15 years | 100% abatement on improvement value |
| Kansas City | Urban Renewal Abatement | 10-25 years | Freezes taxes at pre-development level |
| Columbus, OH | Community Reinvestment Area | 10-15 years | Up to 100% improvement value abated |
| Indianapolis | Residential Abatement | 5-10 years | Phases out over the abatement period |
How to Qualify
Eligibility requirements vary by program but commonly include:
- Timing: You must apply before or during construction or renovation. Applying after the project is complete often disqualifies you.
- Location: The property must be in the designated area (if the program is location-specific).
- Minimum investment: Some programs require a minimum dollar amount of construction or renovation.
- Owner occupancy: Residential abatements often require that you occupy the property as your primary residence.
- Compliance: Maintaining the property in good condition and remaining current on any non-abated taxes.
Application Process
- Check availability: Contact your city or county economic development office or search online for your municipality's abatement programs. Look up your area on our county pages for local tax information.
- Apply before you start: Most programs require application before construction or renovation begins. Pre-approval is typically required.
- Submit required documentation: Building permits, contractor estimates, project plans, and proof of property ownership.
- Receive approval: The local review board evaluates your application and, if approved, issues the abatement agreement.
- File annually: Some programs require annual compliance verification to maintain the abatement.
Financial Impact of Abatements
The savings from a tax abatement can be substantial. Consider a homeowner in Philadelphia who builds a new home valued at five hundred thousand dollars. Without the abatement, annual property taxes on the improvement might be seven thousand dollars. With the ten-year abatement, taxes on the improvement are eliminated for a decade, saving seventy thousand dollars total. Even phase-out abatements (where the abated percentage decreases each year) deliver significant lifetime savings.
Use our property tax calculator to model your potential savings under an abatement scenario.
Potential Drawbacks
- Abatements expire. When the abatement period ends, your tax bill may jump dramatically. Budget for this transition.
- Resale complications. Buyers may factor in the remaining abatement period when making offers. A home with one year left on an abatement is less attractive than one with nine years remaining.
- Political risk. Abatement programs can be modified or eliminated by future city councils or state legislatures.