Taxes are one of the more complex facts of life to understand, much less do, especially taxes in real estate.
While New York City fetches some of the greatest home and property values in the U.S., it can prove to be a downside when it comes to taxes.
With New York real property tax being one of the highest in the country, many homeowners and buyers look for any relief they can get.
Luckily, NYC condo and coop owners get a much needed economic reprieve with exclusive tax abatements.
Tax Abatement Programs for Coops and Condos
- Tax abatements are programs that exempt or reduce your taxes over a period of time.
- These abatements encourage real estate development as well as homeownership.
- The two most popularly utilized tax abatement programs for coops and condos are the J-51 and 421a.
- The 421a tax exemption program only applies to new developments and creates the most tax savings. However, because the requirements have become more stringent, this tax abatement will become harder to find in NYC.
- The J-51 program applies to buildings that wish to make capital improvements or repairs to their buildings.
- If your building doesn't meet the requirements to qualify for either program, individual shareholders or condo owners can apply for a separate tax abatement.
- In order to qualify for the Condominium and Cooperate tax abatement, your building must have 8 units or less, and must not be enrolled in another tax abatement program among other criteria.
- Many other tax abatement programs are available for different types of construction in the city of New York.
What are Tax Abatements?
Tax abatements are government programs that grant exemptions or reductions from taxes over a period of time to encourage industrial or real estate development.
Types of Coop and Condo Tax Abatements in NYC
There are several New York City tax abatement programs for condo and coop owners but the most popular include the J-51 program and the 421a program.
J-51 Tax Abatement Program
The J-51 program grants abatements to residential apartment buildings undergoing renovation.
The goal of the program is to incentivize owners of rent-regulated buildings to make improvements.
Through the program, building owners are able to get back 75% of the costs spent on remodeling.
In the past, owners were able to raise rent on units based on remodels, but when a building owner is receiving J-51 funds, it is against the law to decontrol rent.
More times than not, J-51 buildings are located in low-income neighborhoods where market rates are similar or lower than rent-stabilized rates.
This may be something to consider depending on your preferences.
However, the program also applies to co-op and condo apartments who want to under maintain their properties and make capital improvements on their properties.
The tax abatement gets passed along to each shareholder in a co-op and every owner in a condo building.
Who is eligible for J-51 and how to apply?
The New York City Department of Housing and Development (HPD) is responsible for determining a building’s eligibility for the J-51 program.
A building looking to offset their maintenance and repair costs can apply for the program. However, the property must meet specific criteria along with their tax assessment average for units.
If you’re looking for apartment buildings with J-51 benefits, you can search all five-boroughs by tax year and refer to HPD’s website for steps on how to file an application.
421a Tax Abatement Program
The original 421a tax abatement program began in 1971 and encouraged developers to build multi-family residential buildings in NYC with an emphasis on affordable housing.
The 421a abatement ranges from 10-25 years depending on the code it falls under.
However, when a developer utilizes the tax exemption program for a condo development, the tax abatement passes long to the buyers/owners of the unit.
In some cases, taxes could be as low as $20 a month.
What are the risks of buying a 421a unit?
Before making the leap to purchase a 421a unit, be sure to know how much time is left in the tax abatement.
This is especially important if the condo or coop you are purchasing is a re-sell.
It’s possible that the current seller wants to sell the property before the abatement expires, which will result in rising property taxes.
Be sure to have a clear picture of your finances and the phasing in the schedule of taxes once the abatement period is over.
Without a proper financial plan, you may be shocked at your monthly costs with the added taxes.
Residential buildings with longer abatements are typically in Queens, Brooklyn, and Upper Manhattan; areas that are considered emerging.
It's also important to know that in 2019, the city changed its requirements to qualify for the 421a tax abatement programs for new developments, making it much more difficult for a building to qualify.
The reasoning behind the amendment was that the program had done its job in spurring a plentitude of new development in the city, and now incentives were no longer needed.
As a result, finding a new development with the 421a tax abatement has become rare. However, it is still possible to find buildings where the program may not have expired.
Who is eligible for a 421a and how to apply?
Similar to J-51, the NYC Housing and Development ( HPD) determines which residential buildings are eligible for 421a abatements.
As a buyer interested in purchasing a coop or condo, you can search all five-boroughs for properties with 421a tax exemptions.
What If My Building is Not Enrolled in J-51 or 421a?
There are plenty of buildings that will not be enrolled or qualify for any of the tax abatement programs like J-51 or 421a, particularly smaller "boutique"-style buildings.
In these cases, your unit may be eligible for a separate tax program--the cooperative and condominium tax abatement program.
The cooperative and condominium tax abatement program is for unit owners who meet the requirements for the abatement.
The amount of the abatement is determined by the assessed value of the residential unit in the development.
Below, are the abatement percentages for New York City coop and condo units:
What are the requirements for the individual Condominium and Cooperative Abatement?
To qualify for the condominium and cooperative abatement you must meet the following requirements:
- If you are a new condo owner you must file a real property transfer tax form or deed with the Divisions of Land of Records.
- To receive abatements, your condo or coop must be your primary residence and you must provide proof to the managing agent or board.
- You must have purchased the unit on or before January 5 to qualify for the abatement for the upcoming tax year. If the unit was purchased after January 5, you can apply for the next tax year.
- Co-op or condo owners cannot own more than three residential units in any one development and one of the units must be the owner’s primary residence.
- Co-op or condo owners cannot be receiving any of the following exemptions or abatements: J-51 exemption, 420c, 421a, 421b, or 421g.
- The property must be classified as Class 2.
- Units owned by a business (LLC), held by sponsors or their successors in interest are not eligible.
- Units owned by a trust are eligible only if the unit is the primary residence of the beneficiary of the trust, trustee, or life estate holder.
- The co-op or condo property cannot be a Housing Development Fund Corporation (HDFC); a Mitchell-Lama Building or in the Division of Alternative Management Programs (DAMP) Program.
How do I apply for the condominium and cooperative abatement?
Boards of directors and managing agents are responsible for applying and renewing the condominium and cooperative property tax abatement for their entire residential development.
Again, be sure to inform either party that your residence is your primary residence to receive tax abatements.
If you, a condo or coop owner do not have a board of directors or managing agents, call 311 or contact the Department of Finance on the next steps to apply.
Other New York City Tax Abatement Programs
There are several other tax abatement programs in New York City that can be useful depending on the needs of specific individuals.
Senior Citizen Rent Increase Exemption (SCRIE)
Senior citizens who meet the following requirements may apply for the Senior Citizen Rent Increase Exemption (SCRIE):
- Must be at least 62 years old.
- Be the head of household as the primary tenant named on the lease/rent order or have been granted succession rights in a rent-controlled, rent-stabilized or rent-regulated hotel apartment.
- Have a combined household income for all members of the household that is $50,000 or less.
- Spend more than one-third of your monthly household income on rent.
Disability Rent Increase Exemption (DRIE)
Individuals who are disabled and meet the following requirements may apply for the Disability Rent Increase Exemption (DRIE):
- At least 18 years old.
- Have a combined household income that is $50,000 or less;
- Spend more than one-third of your monthly household income on rent; and
- You must have been awarded one of the following:
- Federal Supplemental Security Income (SSI)
- Federal Social Security Disability Insurance (SSDI)
- U.S. Department of Veterans Affairs disability pension or compensation or
- Disability-related Medicaid if the applicant has received either SSI or SSDI in the past.
- Be named on the lease or the rent order or have been granted succession rights in a rent-controlled, rent-stabilized, rent-regulated hotel apartment or an apartment located in a building where the mortgage was federally insured under Section 213 of the National Housing Act, owned by a Mitchell-Lama development, Limited Dividend housing company, Redevelopment Company or Housing Development Fund Corporation (HDFC) incorporated under New York State's Private Housing Finance Law.
Commercial Revitalization Program (CRP)
The Commercial Revitalization Program (CRP), applies to commercial property in NYC.
It provides tax rewards for through a property tax abatement and a Commercial Rent Tax Special Reduction for mixed-use or nonresidential buildings built before 1975.
Eligible properties include elementary and secondary schools, office space, or retail stores.
Depending on the lease term, a minimum of three years or five years or more, the building owners’ tax bill will reduce and the benefit will pass on to you, as a decrease in rent.
