Tax Abatement Benefits Explained

Tax Abatement Benefits Explained

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Hearing about tax abatements, but have questions? Read on as we chat with a local mortgage expert to get answers.

For most homeowners, property taxes are a major expense. While property tax rates vary depending on where you live, they typically average between 1-3% of the home’s value each year. “Many people don’t realize that this recurring expense doesn’t go away when you pay off the mortgage,” says Ron Erdmann, Branch Manager of the Guaranteed Rate Cincinnati office. “Property tax is a perpetual cost of home ownership. That is, unless you have a tax abatement.” 

What is a Tax Abatement?

A tax abatement is a government tax incentive program that can reduce or eliminate your property tax rate for a certain period of time. Abatement durations vary, from a few years to more than a decade. Here’s a good overview of Cincinnati tax abatements — https://buildcollective.com/tax-abatement/ — and a more recent update on how those policies may change soon: https://buildcollective.com/tax-abatement-2020/

According to Erdmann, the purpose of these programs is to incentivize desired actions, such as more eco-friendly building practices (i.e., LEED certification) or to attract more buyers to a developing area. “For example,” he adds, “the new HOMEARAMA Walworth Junction development near downtown has homes that are Target LEED Gold certified, which makes them eligible for 15-year tax abatement.” Some cities offer tax abatements citywide, while others only offer them in designated areas. Some cities limit these programs to low-to-middle-income property owners, but many programs have no income restrictions.

Not Just for New Construction

Tax abatement programs reduce or eliminate the amount of property tax owners pay on new construction with LEED certification, but also for rehabilitation and/or major improvements. “It doesn’t have to be new construction. If you rehab an old house, you’re only taxed on the pre-renovation price,” Erdmann explains. “Norwood has a program like this, and Blue Ash has a version of it. Other areas and cities are starting to jump on it.”

You can buy a property that already has an abatement, or you can purchase an eligible property, make the required improvements, and apply for the abatement yourself. The first option is considerably easier, Erdmann says, because it means someone else endured the construction and all you have to do is move in, but both are possible.

This doesn’t completely eliminate your property tax bill, though. “You’ll still have to pay taxes on the value of the property before it was improved,” Erdmann says. “But the savings can be substantial.”

More Home for the Value

These tax abatement programs can bring buyers significant savings. Erdmann says it also allows buyers to get more home for the same price, or improve their chances of qualifying for a mortgage by putting a home’s total monthly payment within reach. Plus, he adds, property tax abatement can improve a home’s resale value for as long as the abatement is in effect.

“Within the city of Cincinnati limits — Hyde Park, Mt Lookout, Madisonville, etc. — property taxes are the same: 2.576%. If you go out and by a $750,000 house, property taxes will be $1,610 a month if it’s not tax abated,” Erdmann explains. “If you go out and find a house that’s $1M but tax abated because it’s LEED gold certified, that means you’re taxed on only $440,000 which makes your property taxes only $944 a month.”

To learn more about mortgage and tax abatement options, contact Ron Erdmann, NMLS 728342, Branch Manager and SVP of Mortgage Lending at Guaranteed Rate, or visit https://www.rate.com/loan-expert/ronerdmann. You can also contact him via email at ron.erdmann@rate.com or call (513) 609-4484. 

Amy Scalia
Publisher & CEO - Amy Scalia, a Cincinnati native, is the editor in chief and publisher of Cincy Chic. Send her an e-mail at ascalia@cincychic.com. From growing up in the cornfields of Harrison and getting a Mass Communications B.A. degree in the bubble of Oxford, to living on the NKY side of the river in Newport and then Ft. Thomas, Amy Scalia has embraced Cincinnati with her presence. Her major life accomplishments include: being a mom of two girls and a boy, a 2010 "40 Under 40" recipient from the Cincinnati Business Courier, winning the "Best New Product/Service of the Year" Award from the Cincinnati Chamber of Commerce and a national Web-writing award from ASHPE in 2007, a national feature writing award from ASBPE in 2006, and running three Flying Pig Marathons.

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