June 19, 2017
Most of our lives are spent in real estate. Whether it's an apartment or house we rent, own or develop, or that office job where we work 9 to 5. We literally eat, sleep and work in real estate for the majority of our lives.
From time to time, we'll select questions from readers on topics surrounding housing and real estate, which affect Philadelphians at home or work and then answer them from a legal point of view.
Q: Do I have to pay real estate taxes if the property I am looking to purchase comes with a real estate tax abatement?
-- Natalie K., from Somerton
A: The answer is yes.
Since 2000, the City of Philadelphia has encouraged improvements to be made to properties located within city limits through its real estate tax abatement program.
Under the city’s tax abatement program, for a period of 10 years, any increases in the property’s assessed value, based upon the improvements made to the property, are exempt from real estate taxes.
Let’s say the property owner is rehabbing a building and, in doing so, increases the property’s assessed value from $100,000 to $200,000. If that owner is eligible for the tax abatement program, that increase in the property’s assessed value will be exempt or abated from real estate taxation for up to 10 years, saving the owner well over $15,000.
The same holds true for a newly constructed building. In that situation, the property owner would only be required to pay on the assessed value of the land for the property during this 10-year period of time.
While the process may seem simple as described here, throughout my career, I have seen even the most experienced of real estate developers struggle with the strict eligibility requirements for these government programs.
Many people fail to realize the tax abatement program is actually divided into three separate and distinct application processes. It all depends on how the property is being used. Is it owner-occupied or an investment property? And if it’s an investment property, is it being rented or sold after renovations are complete? Are the improvements to the property being made to a vacant lot (i.e., new construction) or to an existing building? These are all factors that need to be considered when applying.
If you are interested, be aware, the time frame to apply for the tax abatement programs differ. Some require an application to be submitted within 60 days from the date the building permit is issued. While others require the property owner to apply by December 31 of the year the building permit is issued.
Because applications to these governmental programs are promptly denied by the city if they are not filed on a timely basis and under the correct program, it makes sense for a property owner to seek legal counsel well before submitting a building permit application.