What is property tax abatement?

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Property tax abatement is a temporary reduction in the amount of tax a property owner must pay. Often, tax abatement means that you only pay tax on the value of the property’s unimproved land; the value of the structure is not taxed. Other times, both the value of the land and the value of the structure are taxed, but at below-market rates.

For example, in places where property tax abatement programs are used to encourage the
redevelopment of run-down homes, local government will only charge tax on the property’s considerably lower pre-renovation value.

Property taxes are an ongoing, significant annual expense for homeowners, even after the
mortgage is paid off. Property tax rates vary by locality, but typically cost about 1% to 3% of the
home’s value each year. This means that if your home is worth $250,000 and your local property tax rate is 2%, your annual property tax bill would be $5,000.

Property tax abatement can save a homeowner tens of thousands of dollars over the program’s lifespan. It provides more breathing room in the monthly budget and can give a meaningful boost to long-term net worth.

Tax abatement can also put home ownership within reach for someone who otherwise couldn’t afford a home. In fact, some abatement programs are targeted directly at this group of buyers and limit eligible properties to those at the middle and lower end of the price scale for a particular community.

Being able to sell your home with a property tax abatement attached can improve the home’s resale value and limit its time on the market. However, the opposite could be true once the abatement expires.

Learn more about local programs for reducing your property taxes in my Mortgage-Calc.com article, What is property tax abatement?

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