What is a Tax Abatement?

So you are trying to buy an apartment in New York City and you notice taxes can vary widely. Coops bundle them in with monthly fees, the same sized condo might be twice as high, and the renovated town home might raise once you close? It all can be confusing but once you do a little research it will become more clear. We have you covered. 

There are several different programs in New York City, we will go over the 421-a tax abatment, the j-51 tax abatement and tax exception. 

Here are the basics for the terminology. 

Tax Abatement: Condos or coops may have an abatement to reduces the property taxes for a certain amount of time. Credits are issued by the government are applied to the current bill with an expiration date.

Tax Exemption: This lowers the tax bill you own by reducing the assessed value of the property. This can be a coop or condo building. 

Tax Abatement and Exemption: These are typically granted to developers to incentivize housing development in a certain area, community facilities, or industrial / commercial zones. If the government feels one area needs more housing or a public facility, they will allow tax exempt building with conditions a certain amount of homes are built or a facility like a school or community center.

Taxes for Individual Units: Abatements are passed to the owners of individual units and over time increase based on the timeline of the original issue date of the tax abatement for the builder. 

421-a

The 421a tax exemption program was established in 1971 to encourage developers to build projects in unused land around the city. These tax breaks were not permanent and typically have an expiration of 10, 15, or 25 years. This program gives owners a 100% exemption from increases for the first two years and then are raised 20% every 2 years for the remaining years. If the building took 2 years to build, the next owner would owe on the original timeline the exemption was issued. 

J-51

The J-51 property tax exemption program is strictly for residential buildings and typically utilized for rent regulated or rent stabilized building. Since these units are protected from major rent increases, the owner can apply for this program to freeze the assessed value if major renovations are needed. This allows for the owner to improve the quality of the building but pay taxes on the value pre renovations. The assessed value with the city would remain the same. 

If you are considering buying a condo with tax exemptions make sure to understand all the details. How much time is left in the tax abatement? If it expires, will it impact the resale price? Do your research on that particular building. How does the tax escalation impact your monthly payments along with a mortgage if you have one. This past year, many new developments condos in Brooklyn do not have the benefits of these programs. I found many buyers who preferred a slightly older condo with lower monthly taxes. 

It is possible that your building will be exempt from the 421a program but the land underneath is not. This means that the city could possible come and reassess the land in order to generate tax revenue. 

Overall New York City has much lower property tax then our surrounding areas such as New Jersey, Connecticut or even Westchester. This has made our city an attractive place for people to invest in real estate. We do have higher than normal income tax for high income earners and a city tax. 

I hope you found this helpful. Please subscribe to my podcast, youtube or instagram to stay in the loop. Call, message or comment if you have any real estate related questions. 

 

We talk about New York and Tax Abatements