If you started your search to buy an apartment or home in NYC, you’ve likely come across countless mentions of tax abatements in the various listing descriptions you’ve read online. Whether or not you are familiar with the concept of property tax abatement in NYC, you would probably prefer to pay less in property taxes if possible.
For that very reason, below we compiled a NYC Tax Abatements Guide for buyers to learn more about these cost-saving property benefits - including real estate tax abatements and exemptions.
What is a property tax abatement vs exemption in NYC?
A residential tax abatement program is a reduction of a real property tax bill imposed on specific properties by a local government like New York City. Typically, the goal of these programs is to encourage development or renovation of residential properties in specific areas of the city.
Proponents of tax abatements argue that real estate tax abatements create construction jobs, revitalize neighborhoods, and increase the tax base in a region by creating additional affordable housing units for residents. Critics contend that abatement programs have the potential to spur rampant development which in turn may cause long-term owners and residents to be driven out of communities.
On the other hand, real estate tax exemptions are a reduction of a property tax bill for specific property owners that meet certain requirements - including household income thresholds or other requirements. In most cases, property owners need to apply to receive such tax exemptions.
What NYC tax abatements and exemptions are available?
There are various types of tax abatement and exemption programs to be aware of in New York City. The most common abatements discussed by apartment buyers are 421a, 421g, J-51, and the co-op and condo tax abatement. Additionally, the most common tax exemptions discussed are STAR, Enhanced STAR, and SCHE exemptions.
Types of tax abatements and exemptions in NYC
J-51 exemption and abatement
Cooperative and condominium tax abatement
STAR, Enhanced STAR exemptions
Veteran, Good Samaritan, and Clergy exemptions
What is a 421a tax abatement?
The most widely discussed tax abatement NYC buyers benefit from is the421a tax abatement. The reason for this is that today there are almost twice as many buildings receiving 421a abatements compared to the next most common type of residential abatement.
The 421a program dates back to 1971 and derives its name from the section number of the New York Property Tax Law. The original goal of the program was to encourage real estate developers to construct multi-unit residential buildings thus creating more affordable housing throughout New York City.
The 421a tax savings last between 10 years and 25 years depending on approval.
Term lengths of 421a tax abatements and codes
10-year term (Code 5110, 5117)
15-year term (Code 5113, 5118)
20-year term (Code 5116)
25-year term (Code 5114)
What are the 421a tax abatement benefits?
The key 421a tax abatement benefit in NYC is the reduction in property taxes you owe for the term of the program. The longer the term of the abatement (i.e. 10 years vs. 25 years), the larger the savings you receive during your period of ownership. The post-construction tax benefits phase out over time based on a set schedule, and the property becomes fully taxable upon expiration of the abatement.
In order to understand the true benefit of a 421a abatement, you need to know the original term of the building’s abatement and when the abatement will expire. This will allow you to understand which phase out schedule applies before your taxes return to normal. Ask your real estate attorney to verify the 421a tax abatement expiration before you sign a purchase contract.
How are 421a tax abatements in NYC calculated?
The amount of a 421a abatement is determined by the percentage of property tax that is abated in the benefit year. For all term lengths, the abatement percentage starts at 100% in benefit year 1 and phases out based on a set schedule over the 10-year, 15-year, 20-year, or 25-year term. Following the expiration of the abatement term, the property is considered fully taxable. You will be able to fact check tax abatements during your due diligence with you real estate attorney via property records and information provided by the managing agent.
In the grid below, the post-construction phase out schedule is shown for each 421a abatement term length.
What is a 421g tax abatement?
The 421g tax abatement was a relatively new program compared to 421a. Beginning in the mid 1990’s, the 421g program provided property tax incentives to encourage the conversion of commercial buildings into residential space in Downtown Manhattan. Specifically, these conversion projects are occurring below City Hall and south of Murray Street in Tribeca.
Abatements under 421g lasted 12 years for non-landmark buildings and 13 years for landmark buildings. Property taxes on non-landmark buildings were fully abated for the first 8 years post-construction and decreased by 20% per year thereafter until the property is fully taxable. Landmark buildings were fully abated for 9 years and decreased by 20% per year thereafter until fully taxable.
The deadline for new 421g applications was December 30, 2007 and the last buildings that benefited from these tax breaks are nearing their final expiration in 2020.
What is a J-51 abatement?
The J-51 tax abatement is unique for many reasons. First of all, theJ-51 abatementis rare compared to the more famous 421a program. Second, the J-51 program is a combination of both a tax exemption and a tax abatement.
Similar to a 421a, the J-51 abatement is to promote the development of multiple-dwelling affordable housing, however a J-51 is more complex given its structure and is more focused on the renovation of rundown residential properties or the conversion of commercial structures in to residential structures.
The mechanics of a J-51 abatement are as follows: 1) a tax exemption locks in the assessed value of the property at the level determined prior to construction or renovation, and 2) a tax abatement then reduces the property taxes owed post construction.
What is the NYC cooperative and condominium tax abatement?
The NYC cooperative and condominium tax abatement, commonly referred to as theco-op and condo tax abatementfor short, allows the owners of a co-op or condo in NYC to have their property taxes reduced. The reduction percentage is between 17.5% and 28.1% if the owners meet certain requirements to apply for the abatement.
The abatement is solely for a co-op and condo owner that uses the unit as their primary residence. If you purchased a condo unit as an investment property, you will not be eligible.
Requirements of the co-op and condo tax abatement
The unit must be the owner’s primary residence
The unit must be purchased prior to January 5th to be eligible for that tax year
The unit owner cannot own more than three units in a building
The unit owner cannot be receiving a J-51, 421a, 421b, 421g, or 420c abatement
The unit cannot be owned by a business entity or trust
The unit cannot be located in an HDFC building
If the owner of a co-op or condo meets the necessary requirements and is approved for the abatement, the annual property taxes on the unit could be reduced annually by between 17.5% and 28.1% depending on the average assessed value of the unit.
NYC co-op and condo tax abatement savings per year
Assessed value $50,000 or less: 28.1%
Assessed value $50,001 to $55,000: 25.2%
Assessed value $55,001 to $60,000: 22.5%
Assessed value $60,001 or more: 17.5%
Eco-friendly property tax abatements in NYC
There are two eco-friendly abatements for environmentally conscious installations completed by eligible property owners: 1) green roof abatement, and 2) solar roof abatement.
The green roof abatement is a one-time property tax abatement for properties that have green roofs. According to the NYC Department of Finance, a green roof is defined as a roof that has "vegetation that absorbs rainwater, provides insulation and combats ‘the heat island effect’, where urban environments can have higher temperatures than surrounding areas."
The green roof abatement amount is calculated at a rate of $4.50 per square foot of the area considered as green roof space. The abatement is limited to the lesser of $100,000 or the taxes due for the property in that taxable year.
The solar roof abatement is a property tax abatement for properties that use solar panels located on the roof of a building as a renewable source of electricity, and potential receipt of such an abatement is determined by the Department of Buildings. Properties that currently receive a 421-a, 421-b, or 421-g tax abatement are not eligible to receive the abatement.
Property tax exemptions NYC owners can apply for
Basic STAR: The School Tax Relief (STAR) exemption provides owners of houses, co-ops, or condos in NYC that have an annual household income of $250,000 or less with property tax savings of approximately $300 per year.
Enhanced STAR: The enhanced version of the STAR exemption provides owners of houses, co-ops or condos in NYC that are 65 years of age or older and have an annual household income of $88,050 or less with property tax savings of approximately $650 per year.
SCHE: The Senior Citizen’s Homeowner’s Exemption (SCHE) provides owners of houses, co-ops or condos in NYC that are 65 years of age or older and have an annual household income of $58,399 or less with property tax savings by a reduction of up to 50% on the assessed value of the property.
Veteran, Good Samaritan, and Clergy: There are additional exemptions available for owners that are veterans of the United States military, owners that became disabled during a crime or in the attempted prevention of a crime, or owners that are members of the clergy. These exemptionsvary in amount.
For a full list of tax exemptions and abatements, visit the NYC Department of Financewebsite.
DISCLAIMER: This material was provided for informational purposes only, and is neither intended to provide, nor should be relied upon as tax, legal, or accounting advice. Prevu and its subsidiaries do not provide tax, legal, or accounting advice. Consult your personal tax, legal, or accounting professionals before considering any transaction as your individual situation may vary.
As an enthusiast with a deep understanding of the intricacies of real estate in New York City, particularly in relation to tax abatements and exemptions, I bring to the table a wealth of knowledge gained through extensive research, practical experience, and a commitment to staying updated on the latest developments in the field.
Now, delving into the concepts mentioned in the article:
1. Property Tax Abatement vs. Exemption:
- A property tax abatement is a reduction in the real property tax bill imposed on specific properties by the local government, with the goal of encouraging development or renovation in specific areas.
- Real estate tax exemptions are reductions in property tax bills for specific property owners who meet certain requirements, such as household income thresholds.
2. Common NYC Tax Abatements:
- 421a Abatement: Introduced in 1971, it aims to encourage developers to construct multi-unit residential buildings, creating affordable housing. The abatement lasts between 10 to 25 years, depending on approval.
- 421g Abatement: Started in the mid-1990s, it incentivizes the conversion of commercial buildings into residential space in Downtown Manhattan, lasting 12 to 13 years.
- J-51 Exemption and Abatement: Focuses on the renovation of rundown residential properties or the conversion of commercial structures into residential structures.
- Cooperative and Condominium Tax Abatement: Offers reductions in property taxes (17.5% to 28.1%) for co-op and condo owners meeting specific requirements.
3. Eco-Friendly Abatements:
- Green Roof Abatement: A one-time property tax abatement for properties with green roofs, providing insulation and combating the heat island effect.
- Solar Roof Abatement: Offers a property tax abatement for properties using solar panels as a renewable source of electricity.
4. Other NYC Tax Exemptions:
- STAR (Basic and Enhanced): Provides property tax savings for owners with an annual household income of $250,000 or less (Basic) or for seniors with an income of $88,050 or less (Enhanced).
- SCHE (Senior Citizen’s Homeowner’s Exemption): Provides property tax savings for seniors with an annual household income of $58,399 or less by reducing up to 50% of the assessed value.
- Veteran, Good Samaritan, and Clergy Exemptions: Additional exemptions for veterans, individuals disabled during a crime, or members of the clergy.
For a comprehensive list and further details, interested individuals are advised to visit the NYC Department of Finance website. It's important to note that the information provided in the article is for informational purposes only, and individuals should seek advice from tax, legal, or accounting professionals before making any decisions, considering the variability of individual situations.