America's Property Tax Advisor

Philadelphia Tax Abatements Finalized

BY TOM BRANHAM, WASHINGTON D.C. MARCH 2021

For more than a decade, Philadelphia has incentivized development by allowing property owners to pay no real estate taxes on the value of improvements related to new construction and rehabilitated properties.

 

New details are coming out on three laws approved by the Philadelphia City Council that will change the city’s tax abatement programs starting in 2022.

 

Commercial and Industrial Tax Abatement Reduced

 

Commercial and industrial property owners may currently qualify for a 10-year 100% property tax abatement. With the passage of Bill 200653 this abatement will be reduced by 10%.

 

Residential Tax Abatement Phased Out

 

Under Philadelphia’s long-standing residential tax abatement program, owners may qualify for a 10-year tax abatement on the value of improvements related to new construction and rehabilitated homes. With the passage of Bill 200366, the abatement will phase out during a ten-year period.

 

Starting in 2022:

 

  • The assessable amount of residential construction costs will be fully exempted in the first year

  • 90% in the second year

  • 80% in the third year

  • 70% in the fourth year

  • 60% in the fifth year

  • 50% in the sixth year

  • 40% in the seventh year

  • 30% in the eighth year

  • 20% in the ninth year

  • 10% in the tenth year

  • After the tenth year, the exemption shall terminate

In the short term, this change benefits residential real estate developers in the city by creating demand since individuals will be incentivized to purchase homes and apply for the abatement before the December 31, 2021 deadline.

 

New Residential Construction Tax

 

With the passage of Bill 200556, a new Development Impact Tax will apply to all residential building permits filed after January 1, 2022.

 

The tax is equal to 1% of the value of new residential construction and improvements. The bill defines improvements as repairs, constructions, or reconstructions that bring a property into compliance. It will be payable in two stages: 50% due upon the issuance of a building permit and the remaining 50% due upon the issuance of a certificate of final inspection.