Property Tax Abatement

What Is a Property Tax Abatement?

A property tax abatement is an agreement in which a local government reduces the property taxes an owner would otherwise pay, for a fixed period, in return for a specific action. In housing, that action is usually building new homes, renovating old ones, or keeping some units affordable.

Abatements appeal to local governments partly because they require no up-front spending. The government gives up future revenue rather than writing a check.

How It Works

Two related tools are often grouped together:

• Abatement — directly cuts the tax owed for a set period.
• Exemption — lowers the property’s taxable value or tax rate. A common version excludes the added value from renovations, so an owner who upgrades older, lower-rent apartments is not immediately taxed on the improvement.

Programs define how large the benefit is, how long it lasts, which areas qualify, and what the owner must provide in return. Affordability requirements are typically recorded as a deed restriction and can outlast the tax break. Some localities also grant abatements to owners who take part in rental assistance programs.

Examples

• Portland, Oregon’s Multiple-Unit Limited Tax Exemption lasts 10 years. Since February 2017 it has been available only to buildings that meet the city’s inclusionary zoning requirements, and the restricted units must stay affordable for 99 years.
• New York City’s 485-x program, created by state law in April 2024, offers exemptions to new buildings with six or more units. Rental projects with 100 or more units can receive a 35-year benefit if 25% of units are affordable at an average of 80% of area median income (AMI), and must pay minimum construction wages. Projects with 150 or more units in designated parts of Manhattan, Brooklyn, and Queens can receive 40 years, with the affordable units averaging 60% of AMI. Small rental projects of 6 to 10 units outside Manhattan can receive 10 years if at least half the units are rent stabilized.

To see what income levels mean in your area, use HUD’s income limits lookup on the HUD User website.

Criticisms and Limitations

• Forgone revenue. Abated taxes are unavailable for schools and services, or must be made up by other taxpayers.
• The “would it happen anyway?” problem. If a project would have been built without the break, the abatement buys little public benefit for the revenue given up. This is hard to measure. A 2019 review of Washington State’s multifamily tax exemption by the legislature’s audit committee found it inconclusive whether the program produced a net increase in development.
• Expiration. When a benefit ends, rising taxes can pressure rents or an owner’s finances.
• Transparency. Since Statement No. 77 took effect for periods beginning after December 15, 2015, the Governmental Accounting Standards Board has required state and local governments to report the dollar amount of taxes abated in their financial statements.

Abatements are closely related to payments in lieu of taxes, in which an exempt owner pays a reduced, agreed amount instead.