What is Tax Abatement?

Published by Thomas Herold in Laws & Regulations, Real Estate

'Tax Abatement' is explained in detail and with examples in the Real Estate edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

Tax abatement represents a taxation level reduction. It can be for either individual consumers or companies. There are many examples of this type of tax break. They could be in the form of a rebate, reduction in tax penalties, or an actual tax decrease. Sometimes people or firms pay too many taxes or get a tax bill that is higher than it should be. In this case, they have the right to ask for an abatement from the IRS or state taxing agency.

Among the different types of tax abatement is the property tax kind. Owners of property might feel that their property value is assessed too highly. They would be able to appeal to the area tax assessor to receive a tax abatement. Businesses that are not for profit can obtain them on their property because of their special tax exempt status.

Tax abatement on property is a major savings. Most owners of houses will be required to pay property taxes that are commonly from 1% to 3% of the value of the house every year. This annual expense does not disappear when the mortgage is completely paid. It represents part of the ongoing cost of owning a home.

There are cities that offer special programs of real estate tax abatement. Such a package assists consumers dramatically. It could help them to purchase a nicer house for the same payment. It might also allow them to be able to obtain a mortgage that they might not otherwise. This is the case if the monthly house payment drops to a level they can afford through such abatement. This type of abatement on property can also help to boost the resale value of the house if it is still in effect when the owner sells.

Some cities in the U.S. offer tax abatement’s to massively lower or even completely eliminate tax payments on houses for not only years but even decades. The idea behind such a program is to bring in buyers to neighborhoods that are in poor demand. This could be part of the inner city which the city is attempting to revitalize. Cities can offer these abatement’s throughout the entire limits. Others provide them for specific areas. Authorities can choose to restrict such programs to middle or low income owners of property as well. A great number of these abatement programs do not carry such an income restriction.

It is possible to purchase properties that are already under abatement. Individuals may also buy properties that are eligible and go through with the necessary improvements. They then apply for this program. It is far easier to buy a property with an abatement than to go through the hassle of bureaucracy and construction.

For abatement’s on improvements to a property, there are special rules. The improvement, rehabilitation, or construction property taxes can be reduced or eliminated. This does not mean that the entire property tax is gone. The pre-improved value of the property will still have taxes owed for it in this particular case.

It is often necessary for a house to be occupied by the owner for the abatement to continue. Renting the house out would cause the special status to disappear. When an owner sells a home to another owner who will occupy it, the property tax abatement will stay with the house. Abatement periods never restart just because the property transfers ownership. If a 10 year program eliminates or reduces the taxes on a home and the seller has enjoyed seven of these years, then the new owner will have the three years left of the status.

Free Download (No Signup Required) - The 100 Most Important Financial Terms You Should Know!
This practical financial dictionary helps you understand and comprehend the 100 most important financial terms.

The term 'Tax Abatement' is included in the Real Estate edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.