What is a Tax Abatement and How Does It Work?

Article Summary:

A tax abatement is a government incentive that can lower or cut property taxes in a certain area. These incentives provide considerable savings for individuals and companies. While governments offer these incentives as a tax break or property tax abatement to improve the local economy, it doesn’t always work.

Buying property is rarely cheap. So, if you are thinking of buying, getting a property with a tax abatement is worth considering. Tax abatements are governmental incentives offered to companies and individuals to invest in property. Companies and individuals can receive reduced taxes for a certain period of time.

These incentives benefit both property owners and local governments. Property owners get reduced payments on property taxes (temporarily) while revitalizing struggling neighborhoods.

Keep reading to learn what a tax abatement is, when it applies to you, and what benefits and drawbacks you should be aware of.

What is a tax abatement?

A tax abatement is an incentive that removes or reduces the amount of taxes an individual or company pays on a residential or commercial property. Tax abatements last for a specific period of time ranging from a few months to a few years. An abatement can be in the form of a property tax abatement or a tax break.

What is the purpose of tax abatements?

Tax abatement programs are typically geared toward lower- and middle-income earners and often focus on less desirable neighborhoods where crime rates may be high. By offering reduced taxes, local governments attempt to rejuvenate the location or spur economic development. Governments offer these incentives as part of their city revitalization efforts to increase the value and appearance of neighborhoods.

A tax abatement program can provide an opportunity for prospective buyers to buy a property and save money on property taxes. Most abatements can help increase property values. This can result in a higher appraisal value and a higher tax rate on the property.

How do abatements work?

You have two options for getting a tax abatement: 1) You can buy a property that has an existing abatement, or 2) you can buy an eligible property, renovate it, and apply for the abatement.

Since a person must live or operate a business in the neighborhood to get the tax abatement, these breaks often encourage new home and business construction within less appealing locations. On the other hand, buyers can also remodel and improve properties to receive the full tax abatement.

You can ask a real estate agent about available tax-abated properties in your local area if you are interested in purchasing one.

Does an abatement mean I don’t have to pay my property taxes?

A tax abatement does not erase your property tax payments. You still need to pay taxes based on the original value of the property. If you sell the property, the tax abatement stays but does not restart when the property changes owners.

Is it possible to apply for a tax abatement?

In some cases, you can apply to receive a property tax abatement. This is typically reserved for businesses who plan to increase revenue or job availabilities in a particular area or for historical property renovators.

However, you may also receive a tax abatement by you can disputing the assessed value of your property. You can file an assessment appeal application with the county assessor’s office. The county appeals board will determine the value of your property in a public hearing.

How to finance your property

A tax abatement can be a great opportunity to save big on property taxes. However, even with these savings, buying a home is expensive and, for many, impossible without a mortgage. Regardless of the property you’re looking at, you’ll need the proper financing before your purchase. Take a look at the lenders below to see which offer works best for you.

What are the pros and cons of property tax abatements?

Governments will offer abatements to individuals or businesses that provide value to the community and create positive economic activity.

Tax abatements can offer a lot of benefits, but they have their potential drawbacks.


Here is a list of the benefits and the drawbacks to consider.

  • Reduce financial burdens of owning tangible personal property*
  • May create more jobs or commerce in the area
  • Could motivate others to build or buy homes
  • May ultimately cost more long-term
  • No guarantee the property values will increase
  • Must plan for higher property taxes once abatement ends
  • Government may cancel the abatement offer if you miss payments

*Also called real property, which includes the land and connected buildings.

Can I sell my property after the abatement ends?

Depending on how your property value changes, you may find it difficult to sell your property even with a tax abatement. One of the biggest risks of flipping abatement properties is the possibility of no substantial changes. If the neighborhood has no improvements, the property value could stay the same or decrease. This can affect your ability to sell and may cost you money in the long term.

In addition to these risks, you’ll also have to consider the eventual increase in property taxes. If you plan to sell the property after the abatement period ends, you need to account for the increase in property taxes in your selling price. This could discourage some potential buyers.

Key Takeaways

  • A tax abatement is a reduction or elimination of taxes on residential or commercial property for a pre-determined amount of time.
  • Governments offer tax abatement programs to create positive economic activity and revive neighborhoods.
  • Tax abatements are typically offered on properties in less desirable areas to spur economic growth.
  • Once a property tax abatement ends, the property taxes will greatly increase.
  • You must still make payments on your property tax bill during the abatement period.
View Article Sources
  1. Assessment Appeals Frequently Asked Questions — California State Board of Equalization
  2. Green Building Tax Abatements — Nevada Governor’s Office of Energy
  3. General Abatement Rules — Government of Summit County Colorado
  4. 5 IRS Tax Relief Programs That Can Help You Pay Off Tax Debt — SuperMoney
  5. Tax Penalty Waiver Letter Sample — SuperMoney
  6. How to Get Out of Tax Debt: Options and Solutions — SuperMoney
  7. 2021 Tax Relief Industry Study — SuperMoney
  8. The Best Tax Relief Companies | March 2022 — SuperMoney
  9. IRS Penalties Explained: How To Get Tax Penalties Waived — SuperMoney