On December 10th, the Philadelphia City Council passed three bills that impact real estate development citywide. The bills deal with tax abatement for new residential construction and for commercial & industrial properties as well a new tax on residential construction.

Delay in Implementing Changes to New Residential Construction Abatement Program

In 2019, City Council modified the current abatement program to reduce the amount of the value of improvements exempt from real estate taxes by 10% each year over a 10-year period (i.e. Year 1 – 100%, Year 2 – 90%, Year 3 – 80%, etc.). Under the new legislation adopted by City Council, the new residential property tax abatement reductions will not take effect until January 1, 2022, extending the original deadline by one year.

Reduction in Tax Abatement for Commercial & Industrial Properties

Under the new legislation, construction projects for new non-residential projects which apply for a tax abatement after December 31, 2021, will receive only a 90% tax abatement on improvement costs for ten years, as opposed to the current 100% abatement.

New “Development Impact Tax” on Residential Developers

The development impact tax imposes a 1% tax on new residential construction. Developers will pay half of the tax when given a building permit and the other half will be due when it’s time for a final inspection. Non-residential construction is not covered by the ordinance. Standard maintenance will not be considered an “improvement,” and future regulations will further define the scope of the tax.

This new tax is calculated based on construction costs for both new construction and rehabilitation of residential properties. This new tax will be levied on all building permit applications filed on or after January 1, 2022.

 

Currently the Mayor has approved the delay in the residential construction abatement program. The other two measures are awaiting his signature.

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