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Last week, AxisPhilly reported that the way the city is valuing raw land under its new property tax system is giving the owners of many tax-abated properties a kind of double-dip break when the 2014 tax bills come around. This is happening because these owners only pay taxes on their land, and the land is now being valued at a smaller proportion of the total assessment.
But add in the so-called “homestead exemption,” which if approved would let homeowners subtract a fixed and as yet undecided amount from the total assessment on their primary residence, and many of these property owners will enjoy a triple dip tax break.
In fact, more than half of all tax-abated properties in the city will have final taxable values of zero – in other words, their owners would pay no real estate tax at all.
Council passed a $30,000 homestead exemption last year in order to try to protect homeowners, especially owners of lower-valued real estate, from steep increases in their tax bills as a result of AVI.
The law specifies that the exemption would apply to “the assessed value of taxable real property” — taxable being the key word here. For a property under tax abatement, the only “taxable” assessment is the value of its land; and land values, even for homes worth nearly half a million dollars, can be lower than the entire deduction.
The result? A home with a land value of $30,000 or less would owe nothing in taxes with a homestead exemption. Likewise, if Council adopts Mayor Michael Nutter’s proposed $15,000 homestead exemption, exemption-eligible homes with land values of $15,000 or less would pay nothing.
It appears that this quirk of the law could extend to many taxpayers.
While we don’t know how many tax-abated properties are owner-occupied, we do know that of the just under 20,000 residential properties currently under abatement, more than 13,000 have a land value of less than $30,000. And more than 8,700 properties have land values of less than $15,000. Any of those properties eligible for the homestead exemption would pay nothing in real estate taxes.
It’s a loophole that’s got at least some community leaders — even ones who don’t object to tax abatements per se — feeling jilted.
“This is the stupidest way to implement homestead exemption and abatement,” says Matt Ruben, president of the Northern Liberties Neighborhood Association. “If there’s a way to apply the homestead exemption to the total assessment, and not the taxable assessment, that’s the smart thing to do. This adds insult to injury, and I think you’d be hard-pressed to find an owner of an abated property who would object to doing it that way.”
Penny Giles, executive director and president of the Francisville Community Development Corporation, feels much the same way.
“We understood that to save our neighborhood we needed to embrace development and economic diversity,” says Giles. “But we’ve seen four, five hundred percent increases in our property values … and then you’ve got these folks who’ve moved in here who are obviously more affluent, and have the abatement. It’s not fair.”
Philadelphia’s 10-year tax abatement program, implemented in 2000, was designed to foster development in a city hampered by relatively high construction costs and low selling prices. It’s had its proponents — who argue that it’s responsible for much of the growth that’s occurred — and its detractors, who argue that it’s a subsidy for gentrification.
AVI seems to be complicating the conversation around who should, and should not be protected from tax increases. With low land values in the first place, and an exemption on top of that, it’s created a triple subsidy for a lucky, lucky few.