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Tax Increment Financing (TIF) is a powerful tool used to fund real estate development and public improvements. By capturing the increased property taxes generated from new developments within a designated Tax Increment Reinvestment Zone (TIRZ), local governments can finance infrastructure projects like streets and utilities. When a TIF district is established, the existing tax values are recorded as the base. As property values rise, the incremental tax revenue can be used to pay for development costs, making it easier to attract new investments.
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TIF/TIRZ • TIF – Tax Increment Financing • TIRZ - Tax Increment Reinvestment Zone
What is the primary purpose of TIF? • Tax increment financing (TIF) is a method of financing real estate development costs--i.e.: to encourage developers to construct buildings or other private improvements, or to pay for public improvements, such as streets, sidewalks, sewer and water, and similar improvements.
What is the Source of the Financing? • TIF uses the additional property taxes paid as a result of development in the district to pay for part of the development costs. When a new building is constructed, the market value of the property and its property taxes typically rise.
How do the mechanics of TIF work? • When a TIF district is created, the current tax capacity of the properties in the district are saved as the TIF district's “base value." As the property in the district increases in value, these increases above the original tax capacity are called “TIF captured value.” • Some TIFs also adopt a tax rate to be used in each year of the TIF. There may incremental changes of this rate at regular intervals during the life span of the TIF. Many TIFs are based on current year rate. • The "tax increment"or"increment" for the district is determined by multiplying the rate by the TIF captured value.
Allocation of Total Base to Estimate Base per Account by % of Current Value to Total Current Value
