Today, December 10, 2020, Philadelphia City Council adopted three (3) bills making considerable changes to the residential and commercial/industrial real estate tax abatement programs and enacting a brand-new construction tax.
Tax Abatement for New Residential Construction
City Council has delayed implementation of changes to the new residential construction tax abatement program. In 2019, City Council modified the current abatement program to “step back” 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.). These changes were set to take effect for all applications submitted after December 31, 2020. Implementation of these changes has now been delayed until January 1, 2022. All eligible applications filed by December 31, 2021 receive the current 100% tax abatement for 10 years.
Tax Abatement for Commercial & Industrial Properties
City Council will reduce the tax abatement for improvements to deteriorated commercial and industrial properties to 90% effective January 1, 2022. Currently, the value of improvements is 100% exempt from real estate taxes for a 10-year period. The exemption will be reduced to 90% of the value of improvements for the 10-year period for all applications submitted after December 31, 2021.
New Tax on Residential Construction (Construction Tax)
City Council has created a 1% tax for “the privilege of constructing any structure for human occupancy for residential purposes or making any improvements to any such structure for which a building permit is required.” This new tax is calculated based on construction costs for both new construction and rehabilitation of residential properties. This tax does not apply to commercial or industrial construction. Construction costs will be defined by regulations developed after the tax is created. Fifty percent (50%) of the tax is due upon issuance of the building permit with the balance due upon issuance of the certificate of final inspection. This new tax will be levied on all building permit applications filed on or after January 1, 2022. Building permits for residential construction filed by December 31, 2021 are not subject to the new construction tax.
While these three (3) bills have passed City Council, these measures still require approval by the Mayor.
