What in God’s name is a tax abatement and why is it relevant to you? It’s your new best friend if you’re buying real estate in NYC and here’s why: A tax abatement is a reduction or exemption in your real estate taxes for a certain period of time. Sounds too good to be true, right? Of course it does- we all know the taxman isn’t exactly looking to do anyone any favors, but it is true and the government offers these tax programs to help stimulate community, industrial, and real estate development.
I’m going to show you the difference between the two most common tax abatements NYC has to offer and how they can save you a bunch-o-money. If you’re buying an apartment, understanding how you can benefit from these abatements may steer you towards buildings that are using these programs and away from those that are not.
J-51 Tax Abatement:
This is a property tax exemption and abatement for eligible residential apartment buildings that are looking to make capital improvements.
For example: Let’s say you’re thinking of buying an apartment in a building that just replaced all its windows, had a new boiler put in, a brand new elevator installed, and then suppose the “reasonable cost of replacement” (determined by NYC Housing Preservation and Development) for those renovations was $800,000. A percentage of that $800,000 will be credited to the building’s tax bill and save all the apartment owners in that building their share of property taxes for the duration of the program. On average, a J-51 tax abatement lasts for 11 years, but can range anywhere from 6 to 20 years.
If you are buying an apartment in a residential building that just received (or still has time left on) their J-51 tax abatement, you can still reap the benefit for the duration of the program and put that extra cash back in your pocket – not the government’s.
421A Tax Abatement :
This abatement program is offered to new construction condo buildings on underutilized or unused land and usually lasts anywhere from 10 to 25 years.
Here’s how it works: Let’s say you just bought a condo in a new development and it’s receiving a 421A tax abatement that lasts for 10 years. For simplicity’s sake, let’s assume your real estate tax bill is supposed to be $1,000/month. Under the the 421A program, you would receive a tax break of 100% and pay zero property taxes on your new condo for the first two years. Every two years thereafter your tax break would decreases by 20% (100%, 80%, 60%, 40%, 20% ) until the abatement phases out after the tenth year. In this case you would save $72,000 for the duration of the abatement!
And there you have it folks. You’re now a J-51/421A Jedi master. Hopefully, I was able to demystify these tax abatements a bit and show you how you can really benefit from them. Keep in mind that not every apartment building in NYC will qualify for these programs, but if you end up buying in a building that does, congratulations.
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