Tax Incremental Financing

When you are considering whether to pursue a real estate development project, reaching out to local government officials regarding the availability of tax incremental financing is one step you can take.

Tax incremental financing – TIF –is a development subsidy whereby the municipality diverts future property tax revenue towards economic development. The origin of tax incremental financing traces back to the State of California. And to 1952.

In order to establish a TIF subsidy, an urban renewal district – a TIF district – is first drawn up by the municipality.

With tax incremental financing, the municipality will be diverting increases in property taxes within the urban renewal district from the municipality, to development. It’s a subsidy. With a lifespan of twenty or twenty-five years.

The foundation for TIF? Development leads to increases in property values within the TIF district. As well as in surrounding neighborhoods. The theory? Increasing property values, which lead to an increase in property tax receipts collected by the municipality, offset TIF subsidies.