• Philadelphia Tax Abatement

    The 10-year tax abatement is good for Philadelphia and is available to EVERYONE. It promotes new construction, jobs and an expanded tax base.

What is the 10-year tax abatement?

Simply put: if you make physical improvements to a piece of real estate in Philadelphia, you don’t have to pay additional taxes on the value of those improvements for ten years. For example, if you remodel your kitchen, and the city’s assessors determine that this remodel increases the value of your home by $25,000, you don’t pay taxes on that $25,000 until after ten years.

For new construction, the benefit can be quite substantial. Since a structure typically represents 80-90% of the property’s total value (with land representing the remaining 10-20%), the entire structure represents an improvement to the property. As such, the owner of a newly built and abated property only pays taxes on the value of the land for the first ten years after the property has been developed. Consequently, that tax bill is only 10-20% of what it would be otherwise; a significant break.

While critics of the 10-year tax abatement like to portray this break as unfair, they ignore the fact that the abatement program encourages new construction and rehabilitation of properties in many Philadelphia neighborhoods. The abatement has worked to revitalize communities, provide well-paying construction jobs, attract and retain residents, attract home- and business-owners to the City of Philadelphia and reduce development costs for commercial and residential projects.

What? I’m confused.
Can you explain how this affects regular people?

Sure, let’s use our aforementioned example of a house with a remodeled kitchen.
A couple in Philadelphia owns a home currently assessed as being worth $150,000. They do an extensive remodel of their kitchen. The city’s assessors determine that this remodel increased the value of their home by $25,000. So, their home is now assessed at $175,000.

However, with an abatement, that additional $25,000 is not taxed for ten years after the reassessment. So, they are still taxed as if their home is only worth $150,000 and their tax bill remains the same. Over the ten-year life of the abatement, their tax bill can still increase if other components of their property are determined to have increased in value; e.g. their neighborhood becomes more desirable so their land value goes up1. But, even if the value of their remodeled kitchen goes up, they still will not pay taxes on the value of that remodel until after ten years.

1 It's also possible that their tax bill will go up if the city increases the property tax rate during the life of the abatement, but the abated value of their improvements would still remain untaxed.

Who is eligible for the tax abatement?

All property owners in Philadelphia are eligible for the tax abatement. There are three criteria you must meet to obtain an abatement:

  1. Complete an application for an abatement on the website of the city’s Office of Property Assessment (OPA).

  2. Present an approved building permit to OPA that has been verified by L&I2.

  3. Be current on your property taxes; i.e. not delinquent.

Unfortunately, there is a widespread misperception that the abatement is some specially targeted tax break that applies only to 100% new construction, and/or only to Center City condos and wealthy developers. THIS IS COMPLETELY FALSE. Any property owner who makes improvements is eligible for an abatement, provided they meet the three criteria enumerated above.

2 Note that this implies that minor or cosmetic improvements are not eligible for an abatement, since improvements that do not require a permit are not eligible; e.g. painting your house.

Has the abatement been a good thing for Philadelphia?

In a word, yes!
The latest city data clearly show that the tax abatement program has been good for the city in multiple ways:

• Property owners throughout Philadelphia neighborhoods and at all price levels have benefitted. Contrary to popular belief, typical abated properties are single-family homes priced between $200,000 and $300,000, not million-dollar condominiums.

• The abatements have helped stimulate the revitalization of Center City and beyond, notably South and West Philadelphia, Manayunk, Northern Liberties, Fishtown and Kensington. As the abatement program continues to mature, the city should see development expand, revitalizing neighborhoods farther and farther from Center City.

• Properties with expired abatements are already contributing an additional $48.1 million in tax revenue every year. By 2026, the city should realize an additional $169.4 million in annual real estate tax revenue.

• Since the abatement was implemented in 2000, real estate development in Philadelphia has grown 376% while, in the suburbs, construction slipped 11.25%.

The Building Industry Association of Philadelphia (BIA) recently commissioned a study to provide current statistics and analysis of the city's 10-year tax abatement program. The report presents an up-to-date overview on the size, distribution and fiscal impact of tax-abated properties in Philadelphia.
Download PDFs of the summary and full report.

Review the latest reports on the 10-year tax abatement.

PHILADELPHIA’S 10-YEAR PROPERTY TAX ABATEMENT
Updated statistics on the size, location and distribution of tax-abated properties in Philadelphia
March 2017
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Summary
Full Report

ECONOMIC IMPACT ANALYSIS OF PROPOSED 10 YEAR TAX ABATEMENT ADJUSTMENTS
The City of Philadelphia retained the services of Jones Lang LaSalle to identify and quantify the economic impact of altering the terms of its ten-year property tax abatement program.
May 2014
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FISCAL ANALYSIS OF PHILADELPHIA’S TEN-YEAR PROPERTY TAX ABATEMENT: A CASE STUDY
Examining the Net Fiscal Impact of a Newly Constructed Tax-Abated Development Project in Philadelphia
January 2014
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Keep up to date with the latest news.


     
3/24/17
Tax breaks help city overall, study says
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3/07/14
New report examines controversial 10-year tax abatement
Read More
     
1/24/14
City tax abatement: The facts matter
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