When Peter and Lori Crouch purchased their Mount Vernon-area home in 1999, they knew they'd have to renovate it. Abandoned for 15 years, the 33-year-old brick house was due to be demolished as part of Fairfax County's blight-abatement program.
"We bought it fully intending to renovate and live in it," said Peter Crouch.
During the five-month renovation process, Crouch learned about the county's tax-abatement program, which gives tax credits to owners renovating their homes or commercial properties.
“It was designed to help homeowners remain in their home and not destroy the character of the neighborhood,” said Janet Coldsmith, real-estate-division director of the Fairfax County Department of Taxation. “The program prevents people from going in, buying a small house and tearing it down completely to build up McMansions. It also stabilizes neighborhoods where they don’t go through a period of decline.”
Provided the home or business property is at least 25 years old and the improvements meet all of the abatement program’s criteria, Fairfax County will award a tax credit for the difference between the original assessment and fair market value for the improved property. For example, if the county assessed the home at $100,000 and the homeowner added $20,000 in improvements, he would receive a $20,000 tax credit and would have to pay only the taxes due on the original $100,000.
“The theory is that it’s covering the added value of the improvement,” said Coldsmith.
Under the tax-abatement program, the owner of a 25-year-old home can qualify for tax credit by increasing the value of his property by a minimum of 20 percent. For a home with a $100,000 assessed fair market value, that homeowner can receive an abatement of more than $20,000.
If the assessed value of the house increases, the property taxes increase by the same percentage on the base assessment. However, if the assessed value of the home falls below the level when the tax abatement was originally approved, the tax credit decreases by that percentage.
“If it goes below the base value, they don’t get all of the credit because they have to pay a base amount,” said Coldsmith. “If, when they started, their house was worth $100,000 and went to $150,000 after their additions, and then for some reason the values decline and it goes to $140,000, they would still have to pay the tax on the base $100,000.”
For improvements to residential properties of one to five dwelling units, the abatement is broken down over a 14-year-period. For the first five years, the homeowner receives 100 percent of the tax credit on his real-estate tax. The tax credit then decreases by 10 percent over the next nine years, until, in the 15th year, he receives 0 percent of a credit.
The abatement period for multifamily properties of six or more dwelling units is spread out over 10 years. The owner receives 100 percent of the tax credit for the first five years and 50 percent over the remaining five years. Improvements to commercial and industrial properties follow the same formula.
Ultimately, what the tax-abatement program does is give a little extra incentive to owners to fix up their properties.
For the Crouches, who had to renovate almost their entire house — from the wiring and plumbing to a new roof — the tax program proved to be a lucky bonus.
"Would I have redone the house without it? Yes. But [the tax-abatement program] was absolutely a big consideration when we got into it," said Crouch.