What is Abatement?
Definition: Abatement is a measure that alleviates or reduces a burden. It is a procedure that decreases the amount owed or imposed in a certain transaction.
Abatement in legal, business or financial situations refers to the lessening, reduction, or ending of something. Moreover, it is something unpleasant or undesirable.
Abatement of Debts and Legacies is a common law doctrine of wills. It dictates that when the equitable assets of somebody who has died are not enough to satisfy all the creditors fully, their debts ‘must abate proportionally’. Consequently, creditors must accept a proportional amount of the deceased person’s estate. In other words, they should not expect all their money back.
What Does Abatement Mean?
The term abatement refers to a situation where an economic burden is reduced. This burden might take the form of a debt, an import tariff, a tax, a fine, a penalty or a reduction of the percentage being charged, like an interest rate or a tax bracket reduction. Tax abatements are the most frequent scenarios where the term is employed and they are a reduction or exemption granted to an individual or a corporation by the government to encourage the expansion of certain activity or project.
On the other hand, natural disasters and town-building are also activities that can create the necessity for a tax abatement to be issued. They normally have a predefined life spam where they can be utilized and then the situations steps back to the regular taxing rules. Finally, debts can also be abated. This is a case that might take place in government-issued debt like student loans or industry-shaping loans, which are tools employed to promote activities within certain business fields like agriculture or farming. By granting abatements, the remaining debt balance can be partially or totally offset.
Let’s say that recently, a small town called Leiper’s Fork, located in the state of Tennessee was severely damaged by a water flood caused by heavy rains that lasted 3 days. Most of the town’s infrastructure suffered badly and both communications and electricity were shut down. After the disaster was contained and the people were relocated, the Governor of Tennessee announced a plan to rebuild the town with the people’s help.
One of the first incentives created to promote the opening of new businesses was a tax abatement that eliminated the income and capital gain tax for 2 years. This measure helped business entrepreneurs to rebuild their facilities and to finance new equipment purchases to re-develop the town’s economy.
Also known as a tax holiday, it is the temporary elimination or reduction of tax. An abatement may occur after a natural disaster such as a devastating earthquake, flood, or hurricane.
Governments sometimes introduce it to encourage economic development. Some cities introduce property tax abatement to homeowners. Property taxes represent a significant expense to people who own their own homes.
In the rich economies, they typically represent between 1% and 3% of the property’s value each year.
Abatement is a taxation strategy usually used by various governments to encourage specific activities, such as investments in capital equipment. A tax incentive, for example, is a type of tax abatement.
Abatements are often utilized in real estate. Some cities have property tax abatement programs that eliminate or significantly reduce property tax payments on a home for years or even decades. The purpose of these programs is to attract buyers to locations with lower demand, such as areas of the inner city that are in the midst of revitalization efforts. Some cities offer tax abatements citywide, while others only offer them in designated areas. Some cities limit these programs to low-to-middle-income property owners, but many programs have no income restrictions. You can buy a property that already has an abatement, or you can purchase an eligible property, make the required improvements, and apply for the abatement yourself. The former option is considerably easier because it means someone else has endured the headaches of construction and bureaucracy and all you have to do is move in.
Abatements typically won’t completely eliminate your property tax bill – you’ll still have to pay taxes on the value of the property before it was improved. But the savings can be substantial. For example, the Portland, OR Housing Bureau says its tax abatement program could save property owners about $175 a month, or about $2,100 a year, for a total savings of $21,000 over 10 years. Without abatement, they might spend about $3,100 a year in property taxes; with it, they might spend about $1,000 a year.
Properties often must remain owner-occupied to continue qualifying for the tax abatement, but if the property is sold from one owner-occupant to another, the tax abatement will remain with the home. The abatement period does not start over when the property changes hands, however. If the seller has received seven years of abated property taxes, the new buyer would receive the remaining three years of a 10-year abatement.
The easiest way to find out if there are any property tax abatement programs in the area where you want to buy is to do an Internet search for “property tax abatement” and the name of your city. For large cities, a neighborhood name might be a more effective search term than a city name. The name of your city or neighborhood plus “real estate listings” plus “property tax abatement” is another effective search string. Knowledgeable real estate agents will also be aware of these programs.
Tax abatement – local economy
By doing away with property taxes, some residents who had not qualified for a mortgage will have a better chance of gaining approval. For the same reason, some will purchase larger properties.
This type of temporary tax reduction/elimination also helps sell homes more quickly. Consequently, the construction industry starts to expand.
The city manager hopes that economic growth due to the tax break will more than make up for the loss of revenue in property tax. Their logic is that when the economy grows overall tax revenues rise.
Abatement in commerce
The term may refer to a reduction in how much tenants have to pay for rent. In a business contract, if one of the parties does not meet a deadline, they could be liable for a penalty. In this context, the term means a reduction of the penalty. Abatement has to do with anything that reduces the amount of money a party has to pay.
Abatement of action
In a legal proceeding, abatement is a suspension, the aim being to save time and expense. This may occur if the plaintiffs cannot maintain the suit in its original form. The plaintiff is the person bringing the action against another in court. If the plaintiff still cannot maintain the suit, the judge will terminate the action.