Tax Abatements in Richmond City, VA

Ever see a listing for a home for sale that boasts a “transferable 10 year tax abatement”? Are you an investor looking to flip a property or a homeowner who wants to make improvements to your current home? Or simply wonder what tax abatement means? Let’s try to make it simple:

First and foremost, DO NOT confuse a tax abatement with Historic Tax Credits. We’ll save tax credits for another day. They are two totally different animals and one has nothing to do with the other.  In the meantime, if you are curious about tax credits, please contact the Department of Historic Resources.

Now, back to abatements. Tax abatements are offered as an incentive to homeowners and investors to improve the city’s neighborhoods by rehabbing dilapidated properties. In return, the tax abatement reduces your annual property taxes despite the improvements made to your home that increase your home’s value. This can save the homeowner thousands of dollars a year in property taxes.

Several localities in the Richmond area offer tax abatement programs, but we will just go into the specifics of Richmond City right now. You must qualify and apply for a tax abatement; it is not done automatically after purchasing a home that you plan on rehabbing. This is important: CONTACT THE CITY TO APPLY FOR THE TAX ABATEMENT BEFORE YOU START ANY WORK ON THE PROPERTY.  Any work completed prior to the initial inspection will not be part of the credit. Other items of note needed to qualify for the abatement:

– Your structure must be at least 20 years old

– Rehabilitation must increase the initial value of the structure by a minimum of 20% for residential properties

-The work must be completed within 24 months of the application date

– There is a $125 application fee for residential properties

– To give an example of a 10-year tax abatement, the abatement is at 100% for 7 years, then decreases to 75%, 50% and 25% for years 8-10 (to ease you back into paying property taxes in full).

Here’s a great thing: the tax abatement transfers with the property title so the new owner can benefit from lower taxes for the amount of time left on the abatement.  If a property is purchased and renovated by an investor, such as our example below, the abatement will transfer to the homeowner who purchases the home from the investor.

Your savings, or your rehab credit, is the building assessment post-renovation (Final Building Value) minus building assessment pre-renovation (Base Building Value).  You are taxed based on the current assessed value minus the Rehab Credit.  Read the example below.  It makes sense, I promise.

This previous Linchpin listing—3100 Woodrow Avenue—is a great example of a tax abatement scenario!

For the property shown above, located at 3100 Woodrow Avenue in Richmond’s Northside, the investor purchased the property in 2012. Before starting the renovation, they contacted the city to apply for the tax abatement incentive. Since the property was built in 1926 and the planned renovations would easily increase the value by at least 20%, they qualified for the abatement.

A representative from the Assessor’s Office came out before the work was started and determined the value of the building to be  $42,000. This is called the Base Building Value. After the renovations were completed, the representative returned to the property and determined the renovated building value to be $144,000. This is the Final Building Value.

The Rehab Credit is the Final Building Value minus the Base Building Value, or $102,000. This is the amount that will be applied to assessed values for 10 years (with 7 years at 100%). Based on the property’s 2013 assessed value of $165,000 and the city’s current tax rate of $1.20 per $100 of assessed value, the homeowner’s 2013 taxes will be $756. Here is how we got there:

2013 Assessed Property Value of $165,000 minus the $102,000 Rehab Credit = $63,000

$63,000 divided by 100 = 6300

6300 multiplied by $1.20 = $756

This is a savings of over $1200 a year!

Thinking of a renovating a property that qualifies for a tax abatement or purchasing a home with an existing tax abatement, such as this one? Call Amy Lee Tesauro at 804.467.1881 or Catherine Willis at 804.338.5397. We love a good renovation.

Tax abatement letter for 3100 Woodrow Ave