Philadelphia’s 20-year tax abatement, explained

What the 20-year tax abatement is

Pennsylvania’s Local Economic Revitalization Tax Assistance Act (LERTA) of 1977 is the law behind most local property tax abatements in the state. It lets a local taxing authority exempt new construction and improvements in designated deteriorated areas, and it caps the schedule of exemptions at ten years.

The 2025 Fiscal Code bill added Section 1799.41-E, “Local economic revitalization tax,” which lifts that cap in two places. In Allegheny County and Pittsburgh (a county and city of the second class) any LERTA schedule, by any taxing body there, may run 20 years. In Philadelphia (the only city of the first class) the longer schedule is narrower: it applies only to “improvements that convert deteriorated property into residential housing units.” An office tower, a closed school or an empty factory turned into apartments can get 20 years. New construction on an empty lot cannot.

The law authorizes; it does not act. Twenty years is a ceiling, not a schedule. The city decides the length, the share exempted each year, the maximum cost per unit, and the areas where it applies, by ordinance.

How Philadelphia’s tax abatement works today

The Philadelphia tax abatement most people mean, the 10-year abatement, still exists, in several versions. Each exempts the increase in assessed value that comes from the work, not the land or the building as it stood, and each stays with the property if it is sold. For applications made after December 31, 2021, the city’s Department of Revenue regulations set them out this way:

The owner applies to the Office of Property Assessment, for most types within 60 days of the building permit being issued; the city’s abatement page has the forms and deadlines. The city also offers a 30-month development abatement, under state Act 175, that covers conversions to residential use while construction is under way. Philadelphia once had a 10-year abatement written for conversions, for turning deteriorated commercial buildings into residential use, but it expired on June 30, 2002. None of today’s 10-year abatements is written for conversions, and none runs longer than ten years.

Which buildings would qualify

Act 45 defines “deteriorated property” more broadly than LERTA itself does. It covers:

• Business property in a deteriorating area: any industrial, commercial or other business property, owned by an individual, association or corporation, located in an area the city designates.
• Former government buildings, including schools. LERTA’s own definition does not include these; Act 45 adds them for this purpose.
• Condemned property: anything a government agency has ordered vacated, condemned or demolished for violating laws, ordinances or regulations.
• Property that must come down: such property that is no longer in use and “must be demolished to make residential use economically viable.” The definition contemplates replacing a building rather than converting it. Whether that earns the 20-year term is less clear: it applies to “improvements that convert” such property, and LERTA defines an improvement as rehabilitation.

The deteriorating areas are the city’s to draw. LERTA requires a public hearing first, where the planning commission, redevelopment authority and others recommend boundaries weighed against the state’s blight criteria, such as unsafe buildings, vacant lots, tax delinquency and poor layout. For its existing commercial and industrial abatement, Philadelphia treats every ward in the city as an eligible deteriorating area. If it does the same here, every office building in Center City would be in one.

Prevailing wage and other conditions

Act 45 lets the city attach requirements to the construction work, by ordinance or resolution, but caps them: they may be “no more restrictive than” Section 1724.1-E(e.1)(4) of the Fiscal Code. That section requires contractors and subcontractors to hold every license, registration and certificate the work needs and to comply with the Workers’ Compensation Act, the Unemployment Compensation Law and the Pennsylvania Prevailing Wage Act. The city may require prevailing wages; it may not go further than that list.

The state law says nothing about affordable housing, and whether the city can require it is an open question. When the state acted, Mayor Parker said the abatement would put the city’s efforts “on steroids to build affordable housing” and that “this is not a blanket windfall for billionaires.” By September 2026 she was more guarded: whatever the city proposes, she said, must be “directly connected to what has been enabled” and “pass legal muster,” and her chief of staff said the bill was being reviewed to ensure it could withstand constitutional scrutiny. Act 45’s cap on the construction requirements the city may attach may be part of the reason. Developers want no conditions at all: “If you attach any strings to it, you neuter it,” Leo Addimando of Alterra Property Group said.

Where it stands: the mayor’s bill and City Council

1. February 2025: Philadelphia's Tax Reform Commission, in a preliminary report, proposes a 20-year abatement for converting struggling office buildings, sunsetting after five years. It needs the mayor, City Council and Harrisburg.
2. November 12, 2025: The Senate passes HB 416 43–6, the House concurs 189–14, and Governor Josh Shapiro signs it as Act 45 of 2025, effective immediately.
3. September 24, 2026: The Inquirer reports the local bill is still in limbo: the administration has not sent City Council draft legislation.

The state vote was one-sided, 43–6 in the Senate and 189–14 in the House, though it rode on a budget bill with much else in it. The city side has been slower. Ten months after the state acted, The Inquirer reported that Council members wanted specifics the administration had not supplied. “Tell them, ‘Send the bill over,’” said Council President Kenyatta Johnson. Cindy Bass called abatements “hugely unpopular”; Nicolas O’Rourke said he wanted the city to get “the revenue that it needs”; Isaiah Thomas put occupied schools ahead of vacant ones. The School District is facing a funding crisis. Every Council seat is on the ballot in 2027.

The school question is not incidental. Of Philadelphia’s 1.3998% real estate tax rate, 0.7839% goes to the School District, so most of any abatement is school revenue forgone.

What 20 years would be worth for an office-to-residential conversion

The abatement exempts the added assessment from the work, capped at its cost. This site's model estimates both what a conversion costs and what the finished homes are worth.

Of the 103 commercial buildings screened in Center City Philadelphia, 66 score well enough to justify a feasibility study. For those, the median conversion costs about $372,800 per home, but the Office of Property Assessment assesses market value, and the model values a finished home at $196,700. The added assessment can be no more than that, less whatever the building was worth before. Taking $196,700 as an upper bound, at the city’s rate of 1.3998% the abated tax is at most about $2,800 per home per year.

The large figures are undiscounted sums, in which a dollar of tax forgone in year 20 counts the same as one in year one. Discounted at 7%, a common hurdle rate for development, doubling the term from 10 to 20 years adds about $11,800 per home, because the extra years arrive last. Either way the most generous abatement the law allows covers a fraction of the median gap this model finds, and at default assumptions the model finds no Center City building that pencils without subsidy.

The abatement and the federal RESIDE Act

The abatement and the federal RESIDE Act pay for different things. The abatement lowers a finished building’s tax bill for years after it opens. RESIDE, Section 210 of the 21st Century ROAD to Housing Act, is a HUD grant to cities toward the up-front cost of converting buildings that are vacant and abandoned. As of September 2026 Congress had not funded it. A project could use both, and the two definitions overlap: a building under a vacate or condemnation order is deteriorated property under Act 45 and may be vacant and abandoned under RESIDE’s code-enforcement test.

Pittsburgh and Allegheny County

The same section of Act 45 gives Allegheny County and Pittsburgh a broader version: there, any LERTA schedule may run up to 20 years, not only one for conversions to housing, and the rule covers every taxing body in the county, including its boroughs, townships and school districts. As in Philadelphia, the longer term exists only where a taxing body adopts it.

Questions

Sources

1. Pennsylvania General Assembly, “House Bill 416 (Act 45 of 2025), history and votes”
2. Pennsylvania General Assembly, “HB 416, Printer's No. 2576, Section 1799.41-E”
3. Pennsylvania General Assembly, “Local Economic Revitalization Tax Assistance Act (Act 76 of 1977)”
4. Pennsylvania General Assembly, “The Fiscal Code, Section 1724.1-E”
5. City of Philadelphia Department of Revenue, “Real Estate Tax regulations, compiled February 16, 2025”
6. City of Philadelphia, “Get a property tax abatement”
7. City of Philadelphia, “Real Estate Tax”
8. The Philadelphia Inquirer, “Philly is exploring a 20-year property tax abatement for converting struggling office buildings to apartments”
9. The Philadelphia Inquirer, “20-year tax abatement to help turn schools and offices into homes may soon be legal in Philly”
10. The Philadelphia Inquirer, “A 20-year tax abatement to redevelop Philly's derelict buildings is in limbo”
11. U.S. Government Publishing Office, “Public Law 119-101, Section 210”

Buildings this applies to: Center City Philadelphia

Federal law: The ROAD to Housing Act explained · Environmental review changes · CDBG and HOME changes · Opportunity Zones · The Innovation Fund · The Build Now Act · Manufactured housing and the chassis rule · How RESIDE grants should be sized