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property tax abatement definition

What Is Property Tax Abatement?

Basically, abating something means reducing or even eliminating it. So, property tax abatement is a long term or short term arrangement wherein your property taxes will be lowered; regardless, if you are making improvements to your home. Under normal circumstances, when you are increasing the value of your home, you will also be raising the taxable value. With the abatement, the tax increase will not occur or at least not by much. A waiver is usually issued as an incentive, in order to encourage the town’s revitalization. And those who were wrongfully charged with a tax lien on their credit report, can use the waiver to have the tax lien removed; to learn more, go to

Property tax abatement is being offered to the owners of commercial buildings, apartment buildings, multiplexes, duplexes, condos and homes – to be converted into residential homes. In order to qualify, your home’s value needs to be at least 115 percent of the value preceding the remodeling. The abatement is not something that you are going to receive automatically. In order to earn it, you need to apply for it. The first step will be contacting your court house, town hall or municipality, and then ask them about it. They are going to have the information available and the form you will need to fill out. They can also arrange for an appraiser to come and evaluate the value of your home before and after the upgrade.

How does it Work

Property tax abatement is, oftentimes, granted by the local governments; most of the money that is paid to them, is through property taxes. This abatement is usually discretionary subsidies, as being granted of it, is done on a case-by-case basis, to investors & specific companies. There are also times that they are being offered to be entitlement subsidies, like in many enterprise zones. Property tax abatement may be structured in many different ways. A company can receive an abatement for a particular percentage, for a certain period time. For example, if a company would receive a 50% property tax abatement for 25 years, they will only need to pay for half of the property taxes that they normally owe, for the next 2.5 decades; for an individual investor, the process is the same; if an investor fails to receive these kind of subsidies, the can get an appeal, and a good example of how a letter is written to gain an organization’s favor, can be seen at

The property taxes of a company may be slowly phased-in throughout a period of time. An example of this may be a deal wherein a company will be paying 20% of the property tax in the first year; 40% in the second year, and so on; until after 5 years, they are going to pay the normal tax rate. The property tax abatement can also be given as a property tax rate that is “frozen” at a particular level; namely, frozen at the time when the contract has been signed; so that even when the company constructs new buildings and improve land, their tax rate won’t be going up, until the abatement ends!

In some of the cases, the companies would agree into a Payment In Lieu Of Taxes or the PILOT. It is sometimes called a FILOT, which indicates Fee In Lieu Of Taxes. On this system, the company will make some of the fixed yearly contribution to the school system or to the city, often at a lower rate than what they would normally be paying, when taxed.

Outcomes and Accountability

Local government will justify the tax abatement, should one argue that the abated taxes are lost revenue – saying that the money would be in the city coffers, if the developments would have not occurred. While this can be true in various cases, it’s all too common for tax abatement to have been given to the companies that do not really need them, thus, depriving the city of the income they could have had, without granting subsidies. This will be the money that could have, otherwise, gone to funding city services. Using the test of “but for” is significant when granting a lengthy abatement, because the city will be gambling away – for up to thirty years – tax revenue, on that assumption that, without the subsidy, there will be no company located there.

Property tax abatements are detrimental especially to school districts (which will be receiving a big portion of their subsidy from the local property taxes) and to the local services, like police and fire departments. This abatement may be held under more scrutiny, with a number of simple reforms, specifically, the usage of job quality standards (and claw backs) in development agreements; and the increase of citizen participation, in the process of subsidy approval, is warranted, as misuse of subsidies can directly impact the quality of a community – to such a degree, that it may include violations committed by creditors; go to for a list of examples.

Property tax abatements information is commonly contained in the development agreement that is signed between the granting government authority and a project developer. The agreement contained information, like the length and rate of the abatement, and any conditions that the company would agree to meet, in exchange for the subsidy. If the company agrees to paying a PILOT, that information can be in the development agreement or it can be in a separate document. Property tax abatement will be a great way of saving money when upgrading your residential building or your home.