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The pros and cons of tax abatements (and Des Moines area programs)

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 multiple types of tax abatements available. Want to know more? Read on to learn the pros and cons of tax abatements, as well as 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 duration of the specified 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 property value each year, the savings can add up. Tax abatements can save you thousands of dollars over a specific period.

Typically, local government, such as cities and counties grant tax abatements. They’re intended to 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 its 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 always attached to the property. So, if you have a tax abatement on your home for seven years, but you 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

Pros

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.

Cons

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 purchased a more expensive house because of the tax abatement savings can struggle 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 new construction in a tax abatement area.

Tax abatements can be revoked. Many cities can revoke the tax savings if you are late on past property tax bills.

Property values stay flat or decline. Don’t forget 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, therefore increase property values, this isn’t a guarantee. Sometimes the neighborhoods don’t improve enough to increase property values – but the tax benefit could still offset the cost of the construction.

Local tax abatements

Des Moines, Iowa

The city of Des Moines offers temporary property tax abatements on improvements and renovations to specific properties in 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, Iowa

Adel is located about 20 miles west of Des Moines. Adel has been offering a 100% seven-year tax abatement on new construction and home improvements through their Urban Revitalization program since 2012. The program continues through 2018. The tax abatement scales down over a three year period starting in 2019. The program ends after 2020.

Altoona, Iowa

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.

Norwalk, Iowa

Norwalk is located a few miles southwest of Des Moines. Norwalk offers a tax abatement on new single-family homes on up to 30% of the assessed added value for a 5-year period (up to $75,000 added value). 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 a tax abatement 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!

 

photo credit: pixabay

2018-09-21T11:29:40-05:00

About the Author:

Amanda has lived in the Des Moines area since 1999, where she and her husband have bought and sold a handful of homes over the years, including a recent flip. Amanda enjoys writing, obsesses about personal finance and is fond of looking at houses. She loves sharing useful tips and info to make life easier for anyone wanting to buy or sell a home. In her spare time, Amanda cherishes time with her family, volunteers with IHYC, gardens, hikes, and practices TaeKwonDo.