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Understanding Tax Abatements 

Here is your normal, everyday human explanation of tax abatements and what they can do for you. 

Alright, here’s the deal. Even bringing up the idea of tax abatements sounds like some sort of legal term that no ordinary human would ever need to understand - I get it! But it really doesn’t have to be that way. Everyday homeowners and (especially) real estate investors should understand what tax abatements are and how they can really be to the benefit of someone purchasing a home. 


Whether you are a first-time home buyer, a seasoned real estate investor, or an everyday homeowner thinking about making improvements/updates to your house, fully understanding tax abatements can help you save a lot of money while enjoying added benefits of restoring or renovating a home - especially if you’re planning on doing it anyway! 


Here in Columbus, a lot has changed over the past 20-30 years when it comes to real estate incentives and how the city council is encouraging residents to invest in their property. Here are some facts (in normal human language) I think you should know about if you are a homeowner. 


What are Tax Abatements? 


Tax abatements are tax benefits that give homeowners incentive to invest in renovations on a current home or a new build in certain specified areas without having to be responsible for the incline in property taxes for that purchase/improvements. 


In short, tax abatements allow an investor or homeowner to improve/renovate/build a property without being taxed on the improvement value for 15 years. 


For example, a flipper buys a distressed house for $150,000. The current taxes are $2,200. He then flips the property and applies for the tax abatement. The home is now worth $300k after renovations. The new homeowner or investor would be able to pay the same property taxes on $150k for the next 15 years. Property taxes basically freeze for 15 years. This is a huge savings for buyers/investors. This can also free up a couple hundred dollars extra a month if the homebuyer wanted to use that towards a more expensive home.


Tax abatements are important to know about simply because property taxes make up a major expense for homeowners, usually amounting to between 1%-3% of the total home’s value each year. 


Tax abatement programs can save homeowners a lot of money, allow them to buy more home for the same price, and even improve their chances of qualifying for a mortgage that otherwise might be out of their reach. 


The Community Reinvestment Act (CRA) of 1977


In the 1970’s, the U.S. government noticed a trend within urban neighborhoods that they wanted to do something about. There was a plight within these urban areas because of a process called “redlining”; a decades-long practice where the government discouraged and avoided making loans to lower-income and minority neighborhoods. 


In short, lower-income and minority neighborhoods were not able to get loans from banks because they were viewed as “too risky” for most institutions to lend money to. Because of this difficulty, the overall quality of low-income neighborhoods began to decline quickly. 


To help this issue, the government passed the CRA with the main objective of strengthening existing laws that required banks to address the needs of all members of their community. 


Now, the program is delineated into two primary categories: pre-1994 and post-1994. 


Post ‘94 CRA - What Changed? 


To keep up with and give the most accurate urban area data, Columbus’ existing post-1994 Community Reinvestment Areas are now divided into three area types based on six main indicators of distress. Here are the six indicators of distress: 


  1. Population Growth: Percentage change of population for an area over a period of five years

  2. Median Household Income Growth: Percentage change in median household income for an area over a five-year period

  3. Poverty Rate: Percentage of the population in an area living at or below the established federal poverty level

  4. Growth in Median Rent: Percentage change in median monthly price per square foot of residential rental property over a five year period

  5. Housing Vacancy Rate: Percentage of unoccupied housing units in an area

  6. Mortgage Foreclosure Rate: Percentage of homes foreclosed upon in an area


Three Main Area Types 


1. Market Ready (Areas meeting distress criteria 1-2)


  • Grandview Crossing CRA

  • Quarry CRA

  • Fifth by Northwest CRA

  • Short North CRA

  • Kenny and Henderson CRA


***Program Details: 100%, 15 year abatements will be available for mid-rise and high-rise projects with a step down payment back to the schools as follows: 15’% of normal school payment in year 11, 30% in year 12, etc.

2. Ready for Revitalization (Areas meeting distress criteria 2-4)

  • 161 CRA

  • Northeast CRA

  • Northland CRA

  • Far South CRA

  • Hilltop CRA

  • Livingston and James CRA

  • Milo Grogan CRA

  • Near East CRA

  • North Central CRA

  • Southside CRA

  • Weinland Park CRA


***Program Details: 100%, 15 year property tax abatements will be available for all projects including single family new construction and rehabilitation. The same affordability requirements for multi-family projects from the Market Ready category applies to the Ready for Revitalization category.


3. Ready for Opportunity (Areas meeting distress criteria 5-6)

    • Franklinton CRA

    • Linden CRA


***Program Details: 100%, 15 year property tax abatements for all properties. 


How to Qualify and Apply? 


Improvements made under a city-issued construction permit that affect the assessed value of a property. Since the process is determined by county evaluators, not all improvements will affect the value of the property. It’s important to know that only those applications including a building permit will be reviewed. 



Certification for a CRA tax incentive consistent of a two-phase process: Phase 1 (Pre-Construction) and Phase 2 (Post Construction). Both applications must be submitted to complete the application of process even if the project has been completed. 


If you are ready to apply, you can go to this website.


The Bottom Line


If you are a homeowner (or even thinking about purchasing a property), you need to know about tax abatement programs! Not only can they save you a ton of money in the long-run, but they can also help you afford / get into properties that might have otherwise been out of your price range. 


By taking advantage of the tax abatement programs here in Columbus, you have the opportunity to not be taxed on the increased value of your home for fifteen years. If we’re talking about free money I’m in! 


If you have any other questions about tax abatement and how you might qualify, give me a call. I’m here to help! 

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