The J-51 tax abatement provides building owners that are upgrading and renovating their property with an exemption that freezes the assessed value of the building. An added benefit is it decreases property taxes for 20 years. Whether you're a developer or you're buying a property with a J-51 abatement, we'll go over everything you need to know about this tax incentive.
hash-markTable of Contents
What Is the J-51 Tax Abatement?
How Long Is a J-51 Tax Abatement?
J-51 Tax Abatement History
Who Benefits From the J-51 Program?
When Does J-51 Tax Abatement on a Building Expire?
J-51 Tax Abatement Bottom Line
hash-markWhat Is the J-51 Tax Abatement?
The J-51 tax abatement is an exclusive tax benefit given to some building owners in New York City. To be eligible for this benefit, you must have renovated your structure or plan to convert an industrial or commercial structure into a residential building.
A J-51 abatement is a form of tax exemption that freezes the assessed value of your structure at the level before you started construction. It also decreases your property tax on a dollar for dollar basis.
Overall, J-51 tax abatements reduce the assessed taxable value of your property while reducing the actual property tax on a dollar to dollar basis.
hash-markHow Long Is a J-51 Tax Abatement?
According to HDP, here's what you enjoy when your property is granted J-51 tax abatement:
- Either a 34-year ( which comprises 30 years full and 4 years phase-out) or a 14-year (which consists of 10 years total and 4 years phase-out) exemption on a building from the increase in real estate taxes due to the construction work on your structure. Typically, affordable housing projects get 34 years exemption, while other projects get 14 years.
- Reduce the existing real estate taxes by about 8 ⅓ % or 12 ½% of the construction cost every year for the next 20 years.
However, privately financed projects around Manhattan south of 110th, both co-ops and condominiums, tend to receive limited benefits, according to HPD. Take note of this the next time you are considering purchasing property around this area.
What the above implies is that whenever you conduct a substantial upgrade on your property, it will get 34 years or 14 years of exemption from increases in property taxes. Also, you will get a dollar to dollar reduction in your existing property taxes by about 12.5% of the upgrade cost for the next 20 years.
Don't forget that your building may not get full credit for the actual cost of upgrading or renovation. The reason for this is that the city uses its own Certified Reasonable Cost (CRC) schedule to evaluate the cost/value of upgrading the building. Therefore, the tax abatement you are getting will be based on that evaluation; keep that in mind whenever you are carrying out a major renovation project on your building.
Furthermore, your building may either get a tax exemption or abatement after renovation. This doesn't mean that you can't get a reduction and exemption altogether. To be eligible for both of them, you must have done an upgrade that significantly increased the assessed value of your property.
hash-markJ-51 Tax Abatement History
1946: Legislation Enacted
The idea of J-51 abatement was born out of necessity. After World War II, there was a severe shortage of affordable rental housing. There, the New York legislature enacted Section 5-C of the New York Tax Law in 1946.
1955: J-41 Tax Abatement Takes Effect
The J-51 tax abatement program took effect in 1955 as a way to encourage building owners to install hot water plumbing in their properties. Since that time, the tax program has been extended. It now includes every significant capital improvement you could think of, such as major window replacements, roof repair, elevator upgrades, and replacement, electrical rewiring, plumbing overhauls, façade work, and sewer line repairs. In addition to landlords, the J-51 tax abatement is also available to developers who are converting industrial or commercial buildings to residential or converting rental buildings to co-op or condos.
The law granted tax benefits to homeowners who upgraded their vacant apartments and made them more habitable for people to live. Some of the apartments were so deplorable that they don't have modern indoor plumbing.
In 1955, section 5 - h was added to the New York Tax law. The section allowed the New York City section J-41-2.4 of the city's Administrative Code. It granted tax benefits for the rehabilitation of existing and rundown buildings.
1963: J-41 is Expanded and Renamed J-51 Tax Abatement
Over time, the J-41 expands, and it covers the renovation of existing multi-family properties, even though they weren't deemed to be standard. In 1963, the expanded J-41 was renamed J-51 Tax Abatement.
1976: J-51 Abatement is Further Expanded
Due to the economic and housing problems in New York during the 70s, which resulted in the obsolete and vacancy of many commercial and industrial buildings, the J-51 Tax abatement was further expanded in 1976. The expansion allows the conversion of non-residential buildings into a multi-family residential building.
Furthermore, the 1976 expansion of the program allowed developers to take advantage of tax breaks and redevelop most buildings in New York that were desolate and unoccupied.
hash-markWho Benefits From the J-51 Program?
The J-51 Tax abatement was initially enacted to grant benefits to owners of rental buildings. The essence was to encourage them to upgrade their properties. However, during the 70s, there was a spike of Condo and Co-op conversions in New York. This implies that buyers of the apartment enjoy the benefits of the program.
hash-markWhen Does J-51 Tax Abatement on a Building Expire?
Don't forget that the J-51 tax abatement on a building isn't for a lifetime; it has an expiration date. So, whenever the full amount of the J-51 lifetime abatement is depleted or the maximum time limit of 20 years is exceeded, the J-51 program expires.
Furthermore, the exemption on your property from an increase in real estate tax due to upgrades done expires after 14 years or 34 years. Generally, affordable housing projects get a 34 years exemption period while other projects get 14 years. And the last four years for both are phase-out periods.
hash-markJ-51 Tax Abatement Bottom Line
The J-51 abatement is a tax reduction that can provide benefits to property developers and purchasers. Since the J-51 Tax abatement is relatively rare in condos and co-op apartments, listing agents find it difficult to give a detailed explanation of these tax benefits to potential buyers.
If you're looking at purchasing a property with a J-51 tax abatement, it's important to work with an experienced NYC broker who can guide you through the process and answer all of your questions regarding the abatement.
I am an expert with a deep understanding of real estate taxation, particularly in the context of New York City. My expertise is grounded in extensive research, practical experience, and a comprehensive understanding of the J-51 tax abatement program.
The J-51 tax abatement is a unique tax benefit exclusively granted to certain building owners in New York City. To qualify for this benefit, owners must have either renovated their existing structures or plan to convert industrial or commercial buildings into residential properties. This program offers a form of tax exemption by freezing the assessed value of the structure at pre-construction levels, along with a dollar-for-dollar reduction in property taxes.
The duration of a J-51 tax abatement can be either 34 years (comprising 30 years of full exemption and 4 years of phase-out) or 14 years (including 10 years of total exemption and 4 years of phase-out). Affordable housing projects typically receive the longer 34-year exemption, while other projects receive the shorter 14-year period.
The tax benefits provided under the J-51 program include an annual reduction in real estate taxes by approximately 8 ⅓ % or 12 ½% of the construction cost for the next 20 years. It's important to note that privately financed projects in specific areas, particularly around Manhattan south of 110th Street, may experience limited benefits.
The J-51 tax abatement has a historical background dating back to 1946 when it was initially enacted to address the shortage of affordable rental housing after World War II. Over the years, it has been expanded and modified to cover various capital improvements, encouraging property owners to undertake renovations and upgrades.
The eligibility for J-51 benefits is not limited to building owners; developers converting industrial or commercial buildings to residential, as well as buyers of upgraded apartments, can benefit from the program. The J-51 tax abatement, however, is not a perpetual benefit, as it has a fixed expiration date. The full abatement period expires after either 14 or 34 years, depending on the nature of the project.
In conclusion, the J-51 tax abatement is a valuable tax reduction tool for property developers and purchasers in New York City. However, its application in condos and co-op apartments is relatively rare, making it essential for potential buyers to seek guidance from experienced NYC brokers familiar with the intricacies of the program.