|Last week I spent the week in Philadelphia, camping out at our Project all day everyday to see what truly is going on and why this renovation is not done yet. For those of you who may not know, we bought this house a year ago, designed it, and hired a GC to handle ALL of the work. I have spent 1 day a week for the last 52ish weeks down in Philadelphia checking on this bad boy but that, I learned, was nothing compared to what I learned in spending a full week down there. |
While down there we had to face issues surrounding the following:Tax Abatements Permits & how to close them outLicensingContractorsConcretePaintingWhat to do when you do not agree with building code…Project Management Finding a good real estate attorneyBut that is WAY too much to cover in one short LTRE post. So let’s talk about one of them.So, as we do, let’s talk Real Estate, let’s talk PROPERTY TAX ABATEMENTS…
FIRST OF ALL, WHAT IS A PROPERTY TAX ABATEMENT?
A property tax abatement is essentially a temporary property tax reduction granted by a local government to encourage economic development in a specific area. These tax abatements can last anywhere from a few years to decades, depending on the area.
WHY ARE THESE TAX ABATEMENTS SO COVETED?
Well, property taxes represent a major expense for most homeowners. Major, as in, they typically amount to 1% to 3% of the home’s value each year. At that rate, these tax abatement programs can end up saving homeowners a TON of money over time, and in some cases, may help future homeowners increase in their financial buying power.
HOW MUCH MONEY ARE WE TALKING HERE?
1% to 3% of a property’s value may not seem like a crazy amount of money when speaking so generally so I want to share two real life examples with you to demonstrate how these work.
#1: Renovating Home
I am going to be totally transparent on here. I bought my current project, as-is, totally uninhabitable, for $135,000.
Since then, I have put A TON of work into renovating the property. So much so that this house property value should be well… exponentially higher at this point.
Through one of the Philadelphia tax abatement programs, I should (fingers crossed), be able to qualify to pay property taxes on that original $135,000 value for the next 10 years.
You may be wondering why I would care about saving money on property taxes for the next 10 years if I intend to sell this property?! The reason being is that these abatements make the sale of your home THAT MUCH MORE ATTRACTIVE. If I am out there looking to buy a home, and I find a gorgeous home, with a tax abatement on it, that I know will save me $$ over the remainder of the abatement period… I am THAT MUCH MORE inclined to buy it!
This leads me to my next example…
#2: Buying a Renovated Home
One of my friends bought a beautifully renovated home last summer in Philadelphia for her primary residence. All of a sudden, on the one year anniversary of home ownership, she received a notice from her mortgagor that her monthly payment would be increasing by $300/month. That is $3,600 per year… After some serious digging, she learned this was due to the tax abatement on her home. When she had purchased the property, the abatement had not been fully transferred from the previous owner over to her. She is on her way to reconciling this thankfully (the review process can take 6 weeks) however that brings my to my next point…
TAX ABATEMENTS – THE TRANSFER
It is important to note that if a property has an abatement on it, the tax abatement sticks with the property regardless of the home owner. However, when there is a change of ownership, the abatement must be formally transferred from one home owner to the next.
If you are in the city of Philadelphia, you can do so through the Office of Property Assessment.
Now, what if you’re home does not currently have a tax abatement attached to it but you think it should…
That’s where I am at! So let’s discuss that too!
TAX ABATEMENTS – THE APPLICATION
The city of Philadelphia does a pretty good job at outlining the local real estate tax abatement programs and how to apply on their city website. My application required me to send in the following information:Property AddressProperty Owner DataBusiness EINCity of Philadelphia Tax ID NumberBuilding Permit NumberCopy of Building PermitRenovation DescriptionIMPORTANT TO NOTE
There may be several different tax abatement programs depending on what city you live in! It is important to check your local governments website to see if your property qualifies!
MY BIGGEST LEARNINGS ON ALL OF THIS
(1) There are SO many different tax abatement programs out there so definitely do your research!
(2) I assumed that if there was an existing tax abatement on a property that it automatically transferred to the new owner. That is not the case, so make sure to get your paper work in on that! The realtors on your transaction should be able to point you in the right direction on that.
(3) YOU CAN APPLY for a tax abatement on your property if you think it qualifies for one of your local programs. I do not know why I just assumed if the local government wanted your property to have an abatement on it, they would let you know – lol oops.
Anyway, that is all for today! Let us know if you have any abatement stories of your own!
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Me – this is based on my own personal experience!