Dramatic Changes To Real Estate Tax Abatement Program And New Construction Tax In Philadelphia

Written by: Natalie Klyashtorny

On Thursday, December 10, 2020, Philadelphia City Council passed several bills directly impacting the development community.

Most significantly, the 10-year tax abatement on residential new construction, which was previously scheduled to be significantly altered beginning in January 2021, was extended until January 2022 due to the economic hardships wrought by the pandemic.

Last year, City Council passed legislation phasing out the exemption benefiting properties containing a newly constructed home.  To learn more about that legislation, click here.

However, with this newly passed legislation, City Council delayed the effective date for these dramatic changes to the real estate tax abatement program for residential new construction for another year, until January 1, 2022, meaning all real estate tax abatement applications applied for by December 31, 2021, will still remain eligible under the original real estate tax abatement program as it relates to residential new construction.

Additionally, in the second bill passed by City Council, the real estate tax abatement program for commercial and industrial properties was changed as well.

Beginning on January 1, 2022, only 90% of the assessable amount of the improvement costs for commercial and industrial properties shall be exempt from real estate taxes over the course of the 10 years of the real estate tax abatement.

Lastly, a 1% tax will be imposed on the cost of construction of improvements made to residential properties.  Non-residential construction is still exempt from such taxation.  The newly enacted tax program will apply to all building permits applied for on or after January 1, 2022.

Under this new tax program, 50% of the tax must be paid by the property owner at the time of the issuance of the building permit with the remaining 50% due and payable by the property owner prior to the issuance of the certificate of final inspection for the construction project.  If no certificate of final inspection is required with respect to the construction authorized by the building permit, the tax must be paid by the property owner in full at the time of the issuance of the building permit.

If you have questions about these newly passed laws and the effect it may have on you, please feel free to contact us at info@nochumson.com and an attorney at Nochumson P.C. will immediately reach out to you to schedule a free consultation.