is a financial term referring to reducing or removing a tax amount charged to an entity.
Abatement comes from the word "abate," which is a synonym for "diminish," "reduce," or "nullify." This means that, whether you are an individual or company, you can decrease or altogether remove tax paid in various fields, including stocks, business, and property. From an objective point of view, your request for tax abatement will more likely be granted if it seems that you overpay the imposed tax.
Tax abatement exists for numerous purposes, one of which is to inspire taxpayers to do certain activities. For instance, the term "tax abatement" is often used in the real estate/property business. By purchasing properties in designated cities, someone can significantly reduce or even nullify tax payment altogether for a certain period, sometimes for decades. Governments usually offer this incentive to promote revitalization efforts, hoping that bringing in more people will rekindle low-demand areas.
The government may also grant tax abatement for businesses located in specific communities. By having a tax reduction in running its business, a company will invest more in its equipment or workers' training. The government gives a temporary decrease in operating taxes in return for business growth, which will help its surrounding. The government will only provide a company with a tax abatement if its existence also benefits the community.
To help rejuvenate the community, a local government provides abatement for properties in certain areas around the city it governs. Interested people are not required to do anything specific; they only need to buy the property and move in (owner must reside in the property to continue being eligible). The tax abatement is temporary and will last for a decade and a half.
The abatement comes in the form of tax reduction. In a year, registered owners can save up to $2,000 a year. Since the annual property tax without abatement is $3,500, owners only need to pay $1,500 to the local government every year. Overall, the owners' total savings in 15 years are $30,000.
Another example is property owners who own unabated residences. If they think their properties can be eligible for tax abatement, they can choose to improve them and apply for the program. Apart from owning properties in rural areas, you can also get tax abatement for other reasons. For instance, you might use the property for non-profit business activities. Or, you plan to use the house to add tourism value to the neighborhood.
Significance of Abatement
Providing abatement is a good strategy for local governments aiming to improve their city. Giving property tax abatement helps redevelop the community, while business tax abatement can improve the area's economy, e.g., more available jobs. Additionally, local business growth may help add more circulated goods and create infrastructure improvements.
Be cautious when showing interest in abated properties. Since these properties are less in demand, their value can remain stagnant or even decrease if the revitalization plan is unsuccessful. By the time the tax abatement period ends, owners may own a low-value residence with an average tax expense. Furthermore, they also need to pay tax in time to avoid the government repealing the abatement.