Tax Abatements: How can I get one and is it worth it?
Some of the greatest benefits of investing in real estate involve tax savings, and I've got a doozy to add to the list: Tax Abatements. This thing can save you some real dough. So, what is a tax abatement, how do you get one, and how much can you really save?
A tax abatement is a tax savings, granted by a governmental entity, usually to encourage economic development in a specific area. Often times those areas are considered distressed and ready for rehabilitation. Lucky for us investors, the City of Columbus has designated several areas around the city that it deems worthy of tax abatement in order to "foster private sector investment to build mixed income neighborhoods." So, here's what you do: purchase a house to rehab in an area approved by Columbus, apply for tax abatement, rehab house, save lots of money.
The City of Columbus has an excellent website where you can read all about how to get a tax abatement, (https://www.columbus.gov/development/housing-division/Residential-Tax-Incentives_M/,) but I'll try to simplify it here in a few easy steps.
Purchase a property in one of the areas designated for tax abatements. There are maps on the website that will help.
Apply for a tax incentive. This is a two phase application process: pre and post construction, and all of the documents needed to complete the application are also on the website. With the application, you'll also need to include before and after photos of the exterior front and back and interior of the property as well as the neighboring properties for comparison purposes.
Pay an application fee to the city... of course! This can range anywhere from $100 for a 1-3 family unit to $2,000 for an 11+ unit. That might seem like a lot, but you'll save exponentially more in tax savings.
Get approval from Columbus, and any increase in value of the property will be exempt from property taxes. Yippee!
If you are thinking, "is all this work going to be worth it?" Here is a real world example, and you can decide for yourself. Taxes on one of my duplexes without a tax abatement are approximately $1175/year. Current taxes on another duplex of mine are $370/year. If I succeed in obtaining that abatement (which I plan on doing) that's a savings of around $800/year... every year. That's worth it to me! Even better, if you're doing a flip, the tax abatement extends to your buyer, which is a great selling point.
So get out there and get saving. And if you need assistance, please feel free to reach out. I'm here to help my fellow lovers of real estate!