Tax abatement is a type of property tax incentive issued by government entities that reduce or eliminates taxes on real estate within the area. The duration of the abatement can range from a few weeks to several years at one time. Residents with low- or middle-income tend to be the most targeted group to receive these benefits. While cities and towns typically offer the best abatements, there are also federal and state government programs. If you purchase a property that's already eligible for property tax reduction, you'll be in a position to benefit immediately. Your tax bill for your property will be less or eliminated during the abatement duration. Issuers have the option of revocation of the abatement, however.
Eligibility
There's no clear answer to when and if you'll become qualified for tax relief. The reason is that the eligibility requirements differ from one municipality to another and from state to state. To get approval, many authorities will likely require applications for abatement. There are several things to look for to determine if you'll fall into the criteria to be eligible for an abatement. In particular, most tax reliefs have specific income requirements for homeowners who are new to the property. These programs are generally intended for middle- and low-income homeowners and families impacted by property taxes. If you earn more than you should, the tax benefits may be out of your ability.
In certain cities, you may be required to earn your tax exemption. You may have to make renovations or environmental changes to your property before applying for a tax abatement. This long process can be an issue, and you should ensure that you have enough funds to pay the property taxes that are not abated during the interim. Tax abatements usually require new residents to relocate to eligible properties within a specific time frame. This can be a huge issue for those planning to move to a new home in the past or within these set time frames.
Issues
Tax abatement programs may encourage families and individuals to relocate to less desirable areas. Therefore, despite the benefits of tax abatements, you might not be happy with the place you have to relocate to receive these benefits. Things to think about include high crime rates and quality of education. Since tax exemptions are only temporary, the homeowners who qualify will have to be prepared for the day when they are due to expire. If a tax abatement expires and you pay your expenses could come as an unexpected shock; therefore, talking with a financial adviser could be a good idea. However, you may get an abatement for the value you have added to the property through renovations and not the home's total value. You'd have to be liable for property taxes based on the property's value before any modifications or additions. You would then be eligible for a tax break on the remaining.
Benefits of Tax Abatements
Most of the time, a local government gives tax breaks to a specific business or person who offers something worth to the local community. For instance, a city government could offer an exemption from tax to a business in exchange for investing within the town, for example, an expansion of its retail space or factory or warehouse. This can also bring the benefit of more jobs to the region. When Target Corporation is given a tax break on property taxes and, as a result, constructs retail stores within the local area, the result is numerous job opportunities. Furthermore, it enhances public health by providing accessibility to cities.
A business that receives tax reductions could make investments in the infrastructure of its locality. A new business may have to expand the number of roads and water lines or power lines within the region to run effectively. While this can benefit the company as a whole, this also helps the local community where the new infrastructure is constructed. If cities are looking to develop their land, they can define development zones. These zones grant tax exemptions for housing development in the region, which encourages homeowners to build homes.
Examples of Tax Abatement
A local government often seeks to attract or maintain businesses in its area. To achieve this, the local government may offer tax reductions as a temporary reduction of the general tax burden for businesses. For instance, this is the case for Ratner Steel Company was given tax relief from Portage, Indiana. The second abatement stipulated that the company would not pay taxes on the equipment during the initial year and be responsible for the entire tax sum until the five-year timeframe is completed.
