Philadelphia Tax Abatements

June 28, 2017
Posted in Real Estate Law
Philadelphia Tax Abatements

If you are in the market to purchase residential, commercial, or industrial real estate in Philadelphia, or if you already own property in the city and are considering a renovation, you should understand the property tax abatements (“PTAs”) specific to Philadelphia. Many people, realtors included, believe that only new construction is eligible for a PTA. That is not the case. This post will shed some light on some common misconceptions about PTAs, and how taking advantage of them can maximize both purchasing and selling power.

PTAs have been around since the late 1990s. In their current form, PTAs allow Philadelphia property owners to make certain improvements to their real property and then exclude from property taxes the added value attributable to the improvements for a period of ten years. To illustrate, if a landowner adds central air conditioning to a townhouse, which increases the taxable value of the land, for ten years the landowner will not be liable for real estate taxes on that increase in value if approved for a PTA. After ten years, the PTA lapses and the value added by the air conditioning becomes taxable. This applies to most residential, commercial, and industrial properties.

Many improvements are eligible for an abatement, but not all. In regard to PTAs, the Philadelphia Code broadly defines “Improvements” as “any repairs, constructions, or reconstruction, including additions and alterations, which have the effect of rehabilitating a structure so that it becomes habitable or attains a higher degree of housing safety, health or amenity, or is brought into compliance with the laws, ordinances, or regulations of the City of Philadelphia.” Ordinary upkeep and maintenance is not included. So, replacing the HVAC system will count as an improvement, but painting the living room will not.

PTAs are tied to the property, not the owner. If you buy a house in 2017 that was approved for a PTA in 2010, then you may still take advantage of abated taxes until 2020. In addition, multiple abatements may be attached to a single property. So, if you replace your roof in 2010 and build a new sunroom in 2015, the value added by the new roof will be abated until 2020 and the value added by the sunroom will be abated until 2025.

PTAs are particularly significant when it comes to new construction. Because the definition of “improvement” is so broad, a newly constructed property will be fully covered by a PTA. If you buy a vacant lot and build a structure on it, then you will only have to pay property taxes on the value of the unimproved land for ten years. That is a major selling point! Buyers should be aware, however, that property taxes will skyrocket after the abatement period lapses. Don’t be caught off guard.

The PTAs are powerful tools, but you must jump through some hoops before your property is approved. If you are considering buying or selling any type of real property in Philadelphia, contact the Real Estate Department at Hamburg, Rubin, Mullin, Maxwell & Lupin today.

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