There is always a lot of talk about New York City real estate tax abatements and exemptions, most of which are labeled by various acronyms that refer to a specific program. Although this subject is much discussed, many of us would benefit from a quick “crash course” on the subject just to refresh our memories.
First, let us briefly look at the key differences between a property tax abatement and an exemption.
The residential real estate tax abatement program is an offset of the gross real property tax bill which encourages development or renovation of residential properties in specific areas of the city, and in some cases to right a perceived unfairness in the system. With the city’s main goal of finding ways to make housing more affordable to middle income residents, other benefits include revitalized neighborhoods and new construction jobs. However, in some cases, these programs do the opposite and work against assisting locals with remaining in their affordable housing units.
By encouraging more affordable housing through credits for specific property owners who meet household income thresholds amongst other things, it creates an opportunity for the residents to receive real estate tax exemptions.
Here is a list of many of the various types of real estate tax abatement and exemption programs within New York City. You may notice that some of the programs listed have aspects of both an abatement and exemption. 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 has both exemption and abatement aspects
If you want to pay the least amount possible in property taxes continue reading to explore these options in further detail and delve into each of their cost-saving property benefits.
NYC 421a Tax Abatement
One of the most popular programs at present with close to double the number of properties receiving 421a abatements compared to the next most common type of residential abatement, it’s safe to say the NYC 421a tax abatement program is a hit. This successful program dates back to 1971 and was created to encourage real estate developers to construct multi-unit residential buildings, thus creating more affordable housing throughout New York City, by offsetting some of the additional costs of buying into a new development though lower real estate taxes for the term 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 the property’s taxes return to normal. 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-, 15-, 20-, or 25-year term. Here’s a friendly warning, after the expiration of the abatement term the property is considered fully taxable!
NYC 421g Tax Abatement
The 421g tax abatement is a relatively new program compared to the 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 now occurring below City Hall and south of Murray Street in Tribeca.
These abatements are for both non-landmark buildings (12 years) and landmark buildings (13 years). 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.
This program ceased in 2008 and the last buildings that benefited from these tax breaks are nearing their final expiration in 2021.
Cooperative and Condominium Tax Abatement
The NYC cooperative and condominium tax abatement, commonly referred to as the co-op and condo tax abatement for short, allows the owners of a co-op or condo in NYC to have their property taxes reduced. The concept is based upon the disparity that the class of real estate single family homes are comprised of has a tax rate of approximately a 1/3 of a comparably assessed cooperative or condominium unit. The reduction percentage of this abatement is between 17.5% and 28.1% if the owners meet certain requirements to apply for the abatement.
There are strict requirements to be eligible for the co-op and condo tax abatement. First, the unit must be the owner’s primary residence and the unit owner cannot own more than three units in a building. Also, there can be no J-51, 421a, 421b, 421g, or 420c abatements applied to the unit. Ownership by a business entity or trust is not allowed and HDFC buildings do not qualify. The ownership date of record is January 5th in order to be eligible for that tax year.
For cooperative and condominium unit owners who meet the requirements and are approved for the abatement, the annual property taxes on the unit could be reduced annually by 17.5% to 28.1% depending on the average assessed value of the unit.
The tax abatement savings rates for each year are
- 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
The green roof and solar roof abatements are infamous eco-friendly abatements for environmentally conscious installations completed by eligible property owners.
The green roof abatement is a one-time property tax abatement for properties that have green roofs. The NYC Department of Finance defines a green roof 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. Receiving this abatement is determined by the Department of Buildings. However, properties that currently receive a 421-a, 421-b, or 421-g tax abatement are not eligible to receive the abatement.
New York City Property Tax Exemptions
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 who 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 who 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.
There are additional exemptions available for owners who are veterans of the United States military, owners who became disabled during a crime or in the attempted prevention of a crime, or owners who are members of the clergy. These exemptions vary in amount.
J-51 Abatement and Exemption
The J-51 tax abatement is unique and less prevalent than the 421a program. This abatement is more focused on the renovation of rundown residential properties or the conversion of commercial structures into residential structures. The J-51 abatement benefit varies depending on the building’s location and the type of improvements. The program combines both a tax exemption and a tax abatement. The tax exemption freezes the assessed value at the level before construction began and the tax abatement decreases property taxes on a dollar for dollar basis.
As you can see from the examples above the residential real estate tax abatement program offers numerous opportunities to offset the total property tax bill.
For more tax guides and advice for co-ops and condos visit our Tools & Resources page.