Short-Term Tax Abatement (5-Year)
What Is a Short-Term Tax Abatement?
In the State of New Jersey, the “short term” tax abatement is governed by the Five- Year Exemption and Abatement Law (N.J.S.A. 40A:21-1et seq. The five-year law allows a municipality to pass an ordinance permitting property owners in an area in need of rehabilitation to receive tax relief on improvements (additions, renovations and new construction) that result in an increase in the assessed value for a period of five (5) years. Put simply, if you renovate or rehabilitate a qualifying property, you will not immediately pay full taxes on the added value — instead, that new value is phased in gradually over five years.
The goal of the law is to provide municipalities with a tool to encourage investment in improvements that might not otherwise occur, ultimately increasing their overall ratable base and benefiting the entire community.
In 2015, the Borough of Fanwood adopted Ordinance No. 15-01R, titled “Exemption and Abatement for Commercial and Industrial Structures in Rehabilitation Area.” This ordinance was authorized under N.J.S.A. 40A:21-1 et seq.
In 2026 the Borough of Fanwood amended and re-adopted the ordinance. No short-term tax abatement applications will be accepted that would take initial effect in 2028 or later tax years.
Who Is Eligible?
To qualify for the abatement, a property must meet the following criteria:
- The property must be located within the Borough’s designated Area in Need of Rehabilitation.
- Owners must file an application with the Tax Assessor within 30 days of completion of the project.
To find out whether your property is located within the designated rehabilitation area, please contact the Tax Assessor’s Office (contact information below).
How Does the Abatement Work?
The abatement applies only to the value of improvements, not the land. Your existing assessment and the land value continue to be taxed at the full rate throughout the abatement period.
Once approved, the new improvement value is phased in according to the following schedule:
| Year | Taxable Portion of Improvement | Abatement (Reduction) |
|---|---|---|
| Year 1 | 0% | 100% |
| Year 2 | 20% | 80% |
| Year 3 | 40% | 60% |
| Year 4 | 60% | 40% |
| Year 5 | 80% | 20% |
| Year 6 | 100% | None — full assessment |
In Year 1, none of the new improvement value is taxable — this is the maximum abatement year. By Year 6, the property is assessed at its full value, with no abatement.
What Does This Mean for Fanwood’s Finances?
A common question from residents is how abatements affect Borough revenues. Here is what you should know:
- The Borough continues to collect taxes on both the land value, and the pre-improvement assessed value throughout the entire abatement period. Only the new improvement value is subject to the phase-in.
- Because the program encourages improvements that would otherwise not occur, the Borough collects more revenue than it would have if the property had remained unimproved or underutilized.
- Once the abatement ends after Year 5, the full improvement value becomes permanently taxable, expanding the municipality’s ratable base.
How to Apply
If you have completed an improvement on a qualifying property, you must file an application with the Tax Assessor within 30 days of project completion. Applications submitted after this deadline will not be accepted.
Link to application: E/A-1-Application
Contact Information
For questions about the program, to find out if your property is in the rehabilitation area, or to obtain an application, please contact:
Mike Ross
mross@fanwoodnj.org
908-322-8236, ext. 131