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What On Earth is a Tax Abatement?

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Curbed University delivers insider tips and non-boring advice on how to buy, sell, or rent a home or apartment. Additional questions welcomed to Up now, tax abatements!

For millennia, humankind has searched for answers to The Four Essential Questions:

1) Who are we?
2) Why are we here?
3) Is it okay to eat this?
4) What is a tax abatement?

While the first three remain as confounding as ever, the question of what a tax abatement is has become...marginally less confounding, and we're going to attempt to explain it, so bear with us. In short, a tax abatement is when the government grants a reduction or exemption from taxes for a specific period in order to stimulate real estate or industrial development. Everybody still with us? Good. Now, the real question is who is getting these magical tax exemptions?

New York City has several tax abatement programs in place. These include the J-51 Program, the 421a Program, the Senior Citizen Rent Increase Exemption (SCRIE), the Commercial Revitalization Program (CRP), and the Cooperative and Condominium Abatement. The SCRIE and CRP apply only to old people and commercial properties, respectively, so we're not going to worry about those. (If you are an old person or a commercial property and would like to worry about them, just follow the links.) As for the other three:

The J-51 Program gives abatements to residential apartment buildings undergoing renovations. It was created in order to incentivize owners of rent-regulated buildings to make improvements to those buildings. Through the program, owners are able to recover approximately 75% of the costs of the improvements. Normally, owners upgrading a rent-regulated building are allowed to raise rents according to the luxury decontrol provisions of the rent stabilization law, HOWEVER, when a building is receiving J-51 money, it is not allowed to decontrol rent. Therefore, J-51 benefits are only advantageous in areas where the market rates are close to or below rent stabilized rates. You can read about that in greater detail. Also important to note is that abatement applications can take years to be approved. The good news: once they are approved, they are applied retroactively. The bad news: in the meantime, keep payin' those taxes.

The 421a Program is meant to promote the building of condos on underutilized or unused land. As explained by the Times, in most cases, "the exemption lasts for 10 years, giving owners a 100 percent exemption from any increases in their real estate taxes for two years, then phasing out the exemption by 20 percent every two years over the remaining eight. In Upper Manhattan and the other boroughs, the exemption can last for 15 or 25 years." The rules for receiving 421a benefits are complicated (Explanation of the Year: "The rules for receiving 421a benefits are complicated") and can sometimes lead to crazy situations, like the one in 2008 where "the only way [CB1] could have denied Ratner the tax break was to remain silent — the board’s resolution harshly criticizing the application fulfilled the public comment requirement and served as a green light." Like we said, complicated.

Cooperative and Condominium Tax Abatement Program:
This program gives tax abatements to Residential Class 2 properties (condos or co-ops with more than three units.) Any unit in a Class 2 building is eligible except units receiving any other type of abatement, sponsor units, units that are used for non-residential purposes, and three or more units in one building owned by the same person. So how do you get this abatement? Apparently, you just apply and then wait a few years. Here's a handy brochure.

Well, that's all we got for this lesson. Hopefully everyone isn't too confused, or at least no more confused than we are. Did we get anything wrong? Did we get everything wrong? Let us know in the comments.
· Curbed University [Curbed]