What are tax Abatements? We hear about them all the time but do you really know how they work?
First of all, all Jersey City tax abatements are not created equal. Abatements are given to developers to spur new construction and development. The less desirable the area the bigger the discount given for the development
You often see in the downtown Jersey City area a 20 year tax abatement. What this is supposed to mean, is the developer is passing on real estate tax savings to their residence purchasers (if a condo building), abatements are also available for rental buildings. Abatements are granted by a city council vote.
Back to the 20 year abatements in the Jersey City downtown area as this is where the abatement is most widely seen. You will often hear a realtor or sales person mention a tax rate…let’s say 1.7%, when mentioning the abatement. What this means is the purchaser of said home is now going to pay 1.7% of the purchase price of their home annually as their real estate tax. This is typically as far as the conversation goes. However that is not the entire story. Typically that 1.7% tax rate is only for the first 6 years and is fixed during this time.
Typically years 7 through 20 are not fixed at this rate, in fact they are usually put on a graduated rate scale. So lets use a hypothetical years 7 through 10, during this time you may be paying 1.85%ish and this rate is fixed for those years. Then years 11 through 14 may be at a rate of 2.0%ish and so on through the 20 years.
At the end of the twenty years your taxes would go up to whatever the prevailing tax rate is at the time.
There are many benefits to the abatement…
1. Obviously reduced taxes
2. If you ever sell your home within the 20 years (for this example) you can sell your home with the abatement intact. This serves as an added benefit to potential home buyers.
3. The revenue created through an abatement goes to the city rather than being diverted in part to the county and school systems.
4. You can have your abatement removed, if you wanted to, however once it is removed you can’t get it back.
