Don't Be Fooled: 421A Tax Abatement

Is there a way to find out the post-abatement tax amount without having to rely on the sales agent's word? Is the info accessible somewhere? Property Shark has tax info but they have a disclaimer that it is only estimated. They have a link to the NYC dept of Finance, but I can't seem to find the info there either.

If there is I do not know about it. Hopefully someone else will read the comments and contribute a site that will give this info, because I would be greatly interested in it.

I know that the nyc.gov site has a section for confirming the tax assessed to a particular property so one can check that their bank is charging the correct amount monthly for escrow. But I dont think it will show the tax value after the abatement expires.

I know there is a tax abatement dept at nyc finance. if you are lucky to get thru to a live person they will tell you. also try calling a real estate atty --they too may know the answer . good luck

great post UD!

Does anyone know anything about the J-51 abatement?

Will any of the proposed changes to the 421a program affect new developments already under construction and scheduled to open in the spring'07?

Peter - What changes are you reffering to? I'm not sure I am aware of these proposed changes.

Mike - J-51 abatement info:

The J-51 Program is administered by the NYC Department of Housing Preservation and Development (HPD) to encourage the renovation of residential properties by granting partial tax exemption and abatement benefits. Benefits vary, depending on the location of the property and the extent and nature of the improvements.

HPD determines eligibility for this program, and Finance implements the benefits once HPD approves your application. Please refer to the HPD site for further information on eligibility and on applying to this program.

Once approved, you will receive a Certificate of Eligibility from HPD along with the property tax abatement application, which you can then return to Finance.

why is 70 washington st different?

Where did you come up with the amount of monthly taxes in the year 2017? I understand that the taxes are assessed every two years to make sure the 20% increase is based on the most current taxes but how do you know what they will be in 10 years? Also, the amount of money that someone buying a $3 million dollar home is going to save is OBSCENE considering how much one has to earn to be able to afford the mortgage payments alone! Let's not start worrying about the monthly increase in 10 years for someone who earns over $1,000,000 a year or gets a year end bonus of $5,000,000. I'm not saying that you don't have a point for someone who inherited the money to buy an apartment or an older couple who might have money in the bank but no steady income. But let's get real...who are you worried about? The abatement is fantastic for developers and buyers alike. And don't forget that to qualify for these tax incentives the sponsor's have to do some kind of affordable housing in the city of Manhattan. This is a good thing! Sales people are responsible fro telling potential buyers about the abatement and the "current assessed taxes". Seems to me that the rest of the work should be done by the broker who has the customer and the buyers attorney.

Noah - a few comments on abatements:

1) Maturity - Abatements can be structured a number of ways, and they are not as easy to calculate as the 20% increase per year you mentioned above. Take for example a common 15-year 421-a abatement. They are usually structured so that the owner has 10 full years of 100% abated taxes, which is a huge benefit. Then in year 11, RE tax owed goes to 80% abated, year 12 is 60% abated and so forth until the end of year 15 when the full RE taxes are owed for the next year. Again, abatement structure can vary.

2) Non abated taxes - New construction should have a non-abated tax opinion in the offering plan. You have to know this when considering expiration date and the pop to monthly, or at least your exit strategy before you go to contract. Sometimes when asked what the non-abated taxes are, seller brokers seem to communicate the party line of "nobody knows what the city will assess 15 years from now" but I think that line is BS. If its not in the offering plan I would walk.

I know that you like to slam abatements since developers capitalize on them to jack up prices. But if an apartment is priced right, an abatement benefit can be a great deal.

I'm a little confused by your post... I'm a regular reader and really appreciate you giving it to us straight but I have a question about this post. The way I understand it (and I am in contract with a new developement with 421A abatement) is that for the first 10 years of the abatement, the tax stays at the starting level (whatever that may be, in my case it's about $90 per month) and then during the 11th year, 20% is added, 12th year another 20% and so on until full tax is assessed at the 15th year. The way this post seems to explain it is that the 20% increases start year 2... I believe this is incorrect. But for the jist of this post, I do agree that selling in year 6 or 7 while the abatement is still in effect is a good idea to keep in mind so as you say, you don't get "stuck without a chair". Please let me know if I'm not reading this correctly. Thanks.

I think the problem with selling 5-6 years before the abatement expires is that you better hope the buyer doesn't listen to your advice above -- if they're informed, they're going to pass by if a tremendous jump in costs will occur.

This is musical chairs and the music stops long before the abatement expires -- at least from the seller's standpoint.

As a purchaser, you never really know what the future holds and whether your place will sell for a profit down the road, but these are time bombs. If you plan on selling in 4-5 years and can't because of outside factors, you may be left holding the bag on one anyway, regardless of your timelines.

Maybe it's because I'm more risk averse, but I would never touch one of these places. I just don't think it's worth being in a position of being the owner when the bomb goes off.

OK. let me get to these one by one:

Reverb - Thanks for your insight! I was not aware of varying structure for different types of abatements and of all the new devs I have been to this far, they all said the same thing to me - 20% of untaxed portion every 2 years until maturity!

2ndly, I agree 100% with that everyone should have knowledge going into a transaction, hence the purpose of this post!

3rd, I dont consider myself a slammer of developers. I think they are selling very expensive products and I want those who do not have the luxury of tons of money to understand what they are getting involved with. For those who work hard to make their money, and saved up to buy a high quality product, new devs offer a great product!

Ethan - You are confirming what I just heard from reverb! If this is the case, than I just have been going to new devs with the other abatement structure! I write on what I experience in the field so its very possible this post is only for those new devs with a 10YR abatement that has adjustments every 2 years.

Please call your developer, confirm your structure, and let me know via a comment here. Would greatly appreciate it!

Bing - We are very alike! I would not get involved at this high of a premium unless I had tons of money.

What worries me about the investment is:

1. Premium of price per square foot for product while monthlys are low

2. Higher closing costs with sponsors transfer fees added

3. Buying a product at such a premium that will get more expensive to carry as time goes on; unless it is a 15YR abatement like reverb and ethan mentioned and structure is different! That makes more sense!

It just seems too risky when you calculate in buy side costs, sell side costs, and what carrying expenses might rise to over time.

I don't think you slam developers, I think you slam abatements! Considering the alternative, which would be paying full taxes year 1, this is a great benefit IF the unit is priced right. Greedy developers more often seem to leverage the abatement for their profit.

That said, isnt something screwed up in the way condos, especially new development is assessed? Why should a 750 sf condo come it at over $10k RE taxes while a number of 3000sf brownstones are assessed at a fraction?

Sorry Reverb for misunderstanding before..I guess I slam the 10YR abatement!

The structure you described before seems a rarity in Manhattan, from who I talked to and what I have seen. Most are 10YR abatements.

Abatements are great when they are an INCENTIVE TO THE CONSUMER WITHOUT IT AFFECTING PRICE ON THE OPEN MARKET.

But that is not the way it works in the real world. Most new devs not only price in the high quality new product into its premium, but also the low monthly expenses. At least that is my feeling, especially BEFORE the NYC marketplace took off in January to where we are now!

What's your take on 421-g abatements? Only available for Lower Manhattan conversions (I believe) but believe they're all >10yr abatements? Any other differences from the 421-a?

Hi Noah- yeah, just checked my offering book and the abatement is 100% for the first 10 years and then increases by 20% in years 11-15 to reach full tax. This is for 5SL in Long Island City.

I am looking to buy a new development in a small building with a 25-yr tax abatement. Is this too good to be true?

I am considering a new development unit (1-bedroom in Midtown West). I have the full figure of what the RE tax will be once the 10 years are up.

Now my thoughts process is as follows - please let me know if my logic is not sound here....

i) Assume RE tax now $50 - w/out abatement - $950. However, in year 11, all the other units in the building + other buildings in Manhattan are all going to have to charge the hiked RE tax, so competitvely, you will not be disadvantaged (unless of course you compare yourself to a co-op with 50% write-off on maintenance etc.).

ii) I realize that while tax abatement expiration will increase my RE tax, also painfully aware that the maintenance in new condos are always headed upwards as well.

Any thoughts? Please advise.

Agree with Zia. Plus, the condominium association can apply for a new abatement once the initial once runs out right?

This is still a great thing for purchasers of new condos. All purchasers get an offering plan and in the Schedule A it clearing shows the full tax. Any agent that doesn't give it should be fired as that is really deceptive. When the building is at full tax the condo will hire a tax attorney to fight the assesment. They can often get it lowered and you only pay them if they win.

If you don't understand new construction you should keep you mouth closed.