A tax abatement is a local agreement between a taxpayer and a taxing unit that exempts all or part of the increase in the value of the real property and/or tangible personal property from taxation for a period not to exceed 10 years. Chapter 312 of the Texas tax code created the ability for Texas jurisdictions to offer this incentive to developers. Tax abatements are an economic development tool available to cities, counties and special districts to attract new industries and to encourage the retention and development of existing businesses through property tax exemptions or reductions. School districts may not enter into abatement agreements.

Local governments often use property tax abatements to attract new industry and commercial enterprises and to encourage the retention and development of existing businesses. Incorporated cities, counties and special districts are allowed to enter into tax abatement agreements. School districts cannot enter tax abatement agreements. While tax abatements are short-lived, they can have a significant future impact.

Tax Code Chapter 312 governs reinvestment zones and tax abatements. This chapter enables property taxing entities, excluding school districts, to curb the property taxes assessed on tangible personal property or real property due to the improvements or repairs to the property. Only the property located within a reinvestment zone qualifies for a tax abatement agreement. Hence, a tax abatement agreement is an agreement limiting the increase in the value of the property taxes due to improvements or repairs to real property. Such agreements are limited to ten (10) years.