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What is Tax Abatement?

By A. Leverkuhn
Updated May 17, 2024
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Tax abatement refers to many different programs that will cut or temporarily ease tax burdens on individual taxpayers, small businesses, or other parties taxed by federal or state government. In most cases, tax abatement is simply a technical term for a tax reduction or tax exemption. It is part of legal terminology for talking about the financial obligations of a taxpayer, and it is something that taxpayers may ask for through legal representation, lobbying, or other means.

Some kinds of tax abatements target homeowners. State or municipal governments might create these abatements when some kind of external condition destroys property values for some property owners. These abatements will affect property taxes for these taxpayers who have experienced a specific kind of hardship. The idea is that property owners who did not cause their values to go down should not still have to pay property taxes on an obsolete value.

Other abatements go to businesses in order to create incentives to attract them to the jurisdiction. Government might give tax abatements to a certain type of business to encourage hiring. This kind of abatement can also be a safeguard against a loss of business revenue for a state or municipality.

In general, the federal government uses tax abatements to provide incentives that will change consumer behavior. When the government cannot work through direct legislation, it can use the tax code to effectively change outcomes. Direct tax reductions or abatements can change almost any area of life, where a financial incentive changes mass behavior.

Allowances for deducting mortgage income from income taxes, tax credit vouchers for fuel efficient vehicles, and all other kinds of new and traditional programs are examples of tax abatement. Nearly everyone who follows current financial news looks at how the government is using abatements at any given time. Taxpayers and accountants also have to stay on top of these policies in order to know how to claim deductions or refunds on their annual tax returns.

Tax abatement comes in many forms. Sometimes, it is in a graduated rate of tax reductions for families. Other times, as in some of the examples above, a tax abatement is in the form of a voucher with a set amount for those who make a specific kind of purchase. Other tax deductions can be either short-term or long-term credits that are added into a household’s annual income tax. To many, the abatement is controversial when it helps or hurts specific taxpayers or businesses. Government always has to be responsive to concerns about the abatements that it provides to the public.

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Discussion Comments
By Vincenzo — On Jul 28, 2014

@Logicfest -- That deduction has been around for a long, long time. Why talk about getting rid of it just because the government can't control its spending and needs tax revenue?

I'm all for any tax break that has proven effective over the years. The mortgage interest deduction is quite popular because it does help a lot of people and does encourage people to purchase homes (a good thing, last I checked).

If it needs to be eliminated, so be it. But let's not get rid of it just because the government can't manage to spend less than it takes in and needs new sources of revenue.

By Logicfest — On Jul 28, 2014

@Logicfest -- The government needs money so perhaps it is time to look at getting rid of the mortgage interest deduction. The federal government estimated the deduction cost the U.S. Treasury about $70 billion in 2013. The deduction is only claimed by around 20 to 25 percent of Americans and even a lot of home owners get more benefit from the standard deduction -- you don't get the mortgage interest deduction unless you itemize.

Also, the deduction effectively discriminates against renters. Why should they pick up the slack for homeowners?

Oh, and one more thing. The homeowners that do take advantage of the deduction tend to be split into two groups -- those at the higher end of the income scale and younger home buyers who have huge mortgages and need the deduction to make ends meet. It could be argued, in the case of those younger buyers, that the deduction effectively entices them into buying bigger homes than they can afford.

I am not saying we need to be rid of the deduction. However, it is time to talk seriously about it and see if it does increase home ownership rates, whether that is a good thing and whether keeping the deduction around is worth the lost tax revenue.

By Markerrag — On Jul 27, 2014

One of the best tax abatement programs out there is the mortgage interest deduction. That one encourages home ownership and helps offset some of the costs associated with owning a home.

It is a very popular deduction but, sadly, the government has been taking aim at it for years. I just hope the feds don't get their way on this one.

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