What is Abatement?

Definition: Abatement is a measure that alleviates or reduces a burden. It is a procedure that decreases the amount owed or imposed in a certain transaction.

What Does Abatement Mean?

The term abatement refers to a situation where an economic burden is reduced. This burden might take the form of a debt, an import tariff, a tax, a fine, a penalty or a reduction of the percentage being charged, like an interest rate or a tax bracket reduction. Tax abatements are the most frequent scenarios where the term is employed and they are a reduction or exemption granted to an individual or a corporation by the government to encourage the expansion of certain activity or project.

On the other hand, natural disasters and town-building are also activities that can create the necessity for a tax abatement to be issued. They normally have a predefined life spam where they can be utilized and then the situations steps back to the regular taxing rules. Finally, debts can also be abated. This is a case that might take place in government-issued debt like student loans or industry-shaping loans, which are tools employed to promote activities within certain business fields like agriculture or farming. By granting abatements, the remaining debt balance can be partially or totally offset.

Example

Let’s say that recently, a small town called Leiper’s Fork, located in the state of Tennessee was severely damaged by a water flood caused by heavy rains that lasted 3 days. Most of the town’s infrastructure suffered badly and both communications and electricity were shut down. After the disaster was contained and the people were relocated, the Governor of Tennessee announced a plan to rebuild the town with the people’s help.

One of the first incentives created to promote the opening of new businesses was a tax abatement that eliminated the income and capital gain tax for 2 years. This measure helped business entrepreneurs to rebuild their facilities and to finance new equipment purchases to re-develop the town’s economy.