Did you know you can save a ton of money on property taxes with a tax abatement? And if you’re in the Des Moines area, there are many types of tax abatements available. Want to know more? Read on to learn the pros and cons of tax abatements, and what programs are available in the area.
What exactly is a tax abatement?
A real estate tax abatement is a reduction or elimination of property tax obligations for the length of the established tax abatement period.
In other words, if your home or business is eligible for a tax abatement, you won’t have to pay the full tax bill for a while (typically several years). Since property taxes can cost up to 3% of a property’s value each year, tax abatement savings can add up.
Typically, local governments, like cities and counties, grant tax abatements. They provide an incentive for new construction, improvements, and renovations. They’re used to attract new buyers or encourage homeowners and investors to improve property either city-wide or in designated areas of a city.
Each program has specific rules and limits. Some require you to make improvements to your property to receive the tax break. Others offer full or partial tax abatements on all new construction. Some have a graduated schedule, and others don’t.
Tax abatements are tied to the property. For instance, let’s say you have a seven-year tax abatement on your home, and decide to sell it after four years. The new owners will receive the tax abatement for the remaining three years.
What are the pros and cons of tax abatements?
Tax abatements can seem like the perfect way to save significant money. But, as with anything else, tax abatement programs have both benefits and drawbacks
Save you thousands of dollars in property taxes. Depending on the program, the savings can be significant.
Improves resale while the tax abatement is in place. It’s much easier to sell a house with a tax abatement. Tax abatements can push property values up and help people afford more house than they could without the tax break.
Revitalize the area. Areas with tax abatement programs can experience redevelopment and improvement, potentially increasing future property values.
Encourage economic growth. Tax abatements attract more buyers to certain areas. Those buyers, in turn, spend money and create more business in that area, which can positively impact overall economic growth.
A significant increase in housing expenses when tax abatement expires. This is a big drawback, especially if you don’t plan for it. When the tax abatement ends, housing expenses can jump by several hundred dollars each month. Homeowners that could afford a more expensive house because of the tax abatement savings can struggle when it’s time to make the new, higher payment. Budgeting for those future tax payments is a necessity.
Decrease in resale value when tax abatement ends. Your property isn’t as attractive to buyers once the property taxes are reinstated. Sometimes property taxes are inflated after a tax abatement expires, making the cost of owning a home in that area more challenging.
Uncertainty about future property taxes. It’s hard to plan for upcoming property taxes when there is no reliable tax history on a property for several years. This is especially true of the new construction tax abatements.
Tax abatements can be revoked. Many cities can withdraw the tax savings if you are late on past property tax bills.
Property values stay flat or decline. Don’t forget that tax abatements are incentives for people to build or improve designated areas. These designated areas are often in need of development for a reason. While the hope is the tax abatement will encourage growth and development, and therefore increase property values – this isn’t a guarantee. Sometimes the neighborhoods don’t improve enough to increase property values (though the tax benefit could still offset the cost of the construction).
Local tax abatements
Des Moines, Iowa
The city of Des Moines offers property tax abatements on improvements and renovations. Some tax abatement programs are city-wide, and others are limited to specific types of properties and designated locations. The city offers different schedules for additions, renovations, and improvements, depending on the targeted area and type of improvements. To receive a tax abatement, property owners must meet the program requirements, fill out an application, and obtain necessary permits and inspections.
Adel is located about 20 miles west of Des Moines. Adel previously offered a 100% seven-year tax abatement on new construction and home improvements through their Urban Revitalization Plan. This program continued through 2018. The tax abatement scaled down over three years, starting in 2019. The program ends after 2020.
Altoona is located a few miles east of Des Moines. Altoona currently has a tax abatement program on new construction and home improvement. Homes can receive a full tax abatement of up to $75,000 added value for five years. Some stipulations apply.
Carlisle is located just southeast of Des Moines, off the Highway 5 bypass. Carlisle renewed its tax abatement program in April 2019 and is offering a full, 100% tax abatement for five years on all residential new construction. Also, existing residential real estate can be eligible for a declining tax abatement over five years. To apply, go to City Hall and fill out some simple paperwork to be approved by the city council.
Norwalk is located a few miles southwest of Des Moines. Norwalk offers tax abatements on new single-family homes on up to 30% of the assessed added value for 5 years (up to $75,000 added value). Also, improvements to existing residential property are eligible for a 100% tax abatement up to $75,000 actual value for five years. Homeowners must complete an application for tax abatement.
Pleasant Hill, Iowa
Pleasant Hill is located on the eastern edge of Des Moines. Pleasant Hill offers graduated, five-year tax abatements on new construction, additions, and renovations. Even home-improvement projects, such as new siding or windows, can be eligible. An application is required.
Van Meter, Iowa
Van Meter is a few miles west of Des Moines, off of Interstate 80. Van Meter has a tax abatement program for new construction, additions, and renovations. The abatement follows a graduated schedule and lasts for five years. An application is required.
Whether you’re selling or buying a home, the process can feel intimidating and overwhelming. But it doesn’t have to. At Coluzzi Real Estate, we answer all your questions and simplify the process. We’re here for you every step of the way. Please don’t hesitate to contact us today!
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