Two decades since the program started, Philadelphia City Council unanimously voted to change a controversial tax abatement for new builds within city limits.

What was the 10-year tax abatement?

The tax abatement exempts developers and homeowners from paying real estate taxes on new construction, or the value of improvements made to existing homes, for 10 years. When the policy was thought up in the 1970s and enacted in its current form in 2000, officials hoped it would encourage real estate development after a period of disinvestment and population loss.

What are the changes?

The bill Council passed reduces the tax break for new residential construction by 10 percentage points each year. The reform bill effectively halves the 10-year property tax abatement for new residential construction. It phases the value of the incentive out over the decade of the incentive, so a full abatement would only be received in the first year. In year two, 90% of a property’s assessed value would be abated and by the tenth year, only 10% of the value would be abated.

 

The real estate industry credits the abatement with revitalizing the city by incentivizing development and expanding the tax base over time. Opponents decry it as a tax break for the wealthy that accelerates gentrification and takes sorely needed money from city schools. But after the unanimous vote for passage, change is now on the way. And more may follow: The new legislation requires the city to review the abatement every three years.

The new bill will take effect Dec. 31, 2020.

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