Tax Abatement

Tax abatement is defined as the temporary elimination of increased real property taxes, typically provided as a stimulus for new development or as an incentive for redevelopment. In the United States of America, the tax abatement program is administered by Department of Community Development's Division of Neighborhood Development. This department is responsible for administering tax abatement for housing, homeowners and residential developers.

If we have to look at the historic aspect of tax abatement and economic development, we must point out that it was first authorized by the State in 1977. The idea back then was to give the government the opportunity for certain businesses to phase-in those new taxes that would otherwise be assessed to their property because of new building construction or the purchase of new equipment for manufacturing, research and development and information technology. Hence, the businesses targeted for tax abatement were the ones in industries such as manufacturing, distribution, warehousing. Currently, the major benefit from tax abatement is to stimulate reinvestment by existing businesses. The point is that the government doesn't want to penalize businesses with large tax bills when they can least afford it (after they have done an improvement, investing money in their facilities), because those companies are creating/providing job opportunities for our citizens. Without this tax incentive, businesses would not be motivated to make serious investments of capital in an attempt to improve their operations.

The important questions is what type of residential developments qualify for tax abatements? The following residential developments qualify for tax abatement: - new construction of single-family homes or multifamily investor-owned properties - conversion of nonresidential buildings to residential units - rehabilitation of existing one- and two-family homes that increases the market value; - rehabilitation of multifamily (three or more units) structures, including historic buildings; - improvements of one- and two-family homes that cost more than $2,500 and would result in an increase in assessed value for real estate tax purposes.

Here is how the tax abatement process works. The exact terms and rate of tax abatement depend on the given project. The respective Housing Officer will verify the facts contained in your tax abatement application and permit and then certify the project for tax abatement. A copy of the certification is forwarded to the County Auditor's Office that the property taxes are to be abated. However, the owner must pay taxes on the increased value of the land itself. In the case of rehabilitation projects, the owner will remain responsible for the initial tax assessment of the property. Any increase in taxes as a result of rehabilitation or new construction will be abated.

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