Breaking Down The Tax Abatement
an in depth look at how the tax abatement works for new construction or a complete renovation
We originally wrote about this back in February of 2013, however, it is a question we hear over & over again from our clients. I thought that I could clarify further by using a few websites maintained by the city that are, in a very un-Philly fashion, quite clear & easy to use. You just need to know where to go.
what exactly is a tax abatement?
The tax abatement does NOT mean there are no property taxes. What is does mean is that the current tax assessment is frozen for 10 years as long as the developer is in good standing with the city & has applied for the abatement within the time requirements set forth by the city of Philadelphia.
scenario #1 – new construction from the ground up built on a vacant lot
The assessment will only include the tax on the land. The improvements will not be taxed for 10 years. Below is an example of an assessment from the O.P.A. (Office of Property Assessment & formerly the B.R.T.) for a new construction home we sold in 2014.**
Column #1-tax year 2015
Column #2-market value $379,500
Column #3-assessed land (taxable) $18,400
Column #4-assessed improvement (taxable) $0
Column #5-assessed land amount (exempt) $0
Column #6-assessed improvement (exempt) $361,000
Column #7-total assessment = market value
The buyer of this home is taxed on a land assessment of $18,400 & is exempt from paying taxes on improvements valued at $361,100 for 10 years.
At the current millage rate; 1.34% of $18,400 puts this annual tax bill at $246.56.
In 10 years if (big if) the total assessment of the property remains $379,500 & the city millage rate remains 1.34% the tax bill for this property will be $5,085.30. This is based on CURRENT INFORMATION. No one can predict the future. This is if everything stays exactly the same, which it more than likely won’t.
scenario #2-the complete renovation of an existing structure
Tax rates in this scenario tend to be a bit higher because the assessment is on the land AND any previous improvements. The new improvements will not be assessed for 10 years. Below is an example from the O.P.A. for a complete renovation we sold this past year.**
Column #1-tax year 2015
Column #2-market value $219,000
Column #3-assessed land (taxable) $14,667
Column #4-assessed improvement (taxable) $80,600
Column #5-assessed land (exempt) $0
Column #6-assessed improvement (exempt) $124,633
Column #7-total assessment=market value
The buyer of this home is being taxed on a land & improvements assessment of $14,667 & $80,600. The buyer is exempt from paying taxes for the new improvements in the amount of $124,633.
At the current millage rate; 1.34% of the total taxable assessment, which is $95,267, puts this annual tax bill at $1,276.58.
In 10 years if (again, big if) the total assessment of the property remains $219,900 & the city millage rate remains 1.34% the tax bill for this property will be $2,946,66. Again, this is based on CURRENT INFORMATION. No one can predict the future. This is if everything stays exactly the same, which it more than likely won’t.
**In the interest of privacy we did & will not disclose the addresses of the properties or the names of the clients we have used as examples.**
Feel free to email us if you have any additional questions about the tax abatement or would like help finding a property that is being sold with a tax abatement.