Tax Abatement

An issue that has caused a lot (I mean a lot) of discussion over the years is residential tax abatement. There are many pros and cons about the concept and I have heard them all. What I have found is that people are either for it (because it creates tax base and jobs), or against it ( because it gives property owners something for nothing). There is very little in between.

While I have been a supporter of tax abatement, there have been legislative changes that have really minimized the impact, at least residentially. When originally adopted, the program abated taxes 75% the first year, 60% the second year and 45%, 30% and 15% each succeeding year. At that time, tax abatement really had an impact on taxes paid!

However, since 2004 tax abatement has been limited to “only” the first $75,000 of taxable value for a 4-year period. Consequently, a home valued at $300,000 pays tax on $225,000. Similarly, a home valued at $125,000, pays tax on $50,000.

As anyone can easily see, the present tax abatement really helps “affordable” home owners and does much less (percentage-wise) for “well-to-do” homeowners. One of the biggest arguments against tax abatement was that it favored those who could afford very expensive homes. Well, such is not the case anymore.

And, perhaps that is the way tax abatement should be. That is, it helps homeowners who need it most. I have shared these comments with some of the biggest tax abatement opponents and they tend to agree with the current formula.

Another factor recently changed is that a home improvement can be eligible for abatement by increasing the home’s value by only 10%. This is a reduction of 5% (was 15%) and does even more to help existing homeowners get a tax break similar to new homebuilders.

As always, if you have questions or comments, feel free to contact me.