New York real estate developers and advocates for affordable housing are locked in political combat right now over the fate of a popular tax abatement program. Known as the 421-A Program, this tax benefit applies to most newly constructed housing built within New York City. The program dates back to the 1970s, when New York City leaders wanted to stem the tide of people moving to the outer suburbs. But in its present form, 421-A has come under fire from those who denounce it as a tax giveaway to the rich.
The 421-A program only applies to new residential units, such as condominiums or co-ops, with at least three units, not single-family homes. The basic idea behind 421-A is that the property owner is exempt for a period of several years from paying additional real estate taxes on the improvement to the land. In other words, if a developer owns a piece of land valued at $500,000, and builds a high-rise condominium valued at $5 million, under 421-A the owner only pays tax on the $500,000. The city foregoes the property tax on the additional $5 million. The length of this tax exemption can run from 10 to 25 years depending on the building's location and the percentage of “affordable housing” units contained in the project.
But critics point out many luxury apartment buildings receive a 421-A exemption without providing much in the way of lower-income housing. Gothamist recently noted many developers receive 15-year tax breaks under 421-A without building any affordable or “below-market” units. And in 2013, the New York State legislature passed “a mysterious amendment to a state omnibus housing bill” to grant 421-A exemptions “to five luxury buildings under construction in Manhattan, all of which would normally have been ineligible.”
Developers argue 421-A is still a necessary part of New York's complex real estate tax system. One such developer, David Kramer, argued in the Daily News people fail to understand the “uneven and irrational” way New York deals with real estate. “I have two business partners who live in comparably valued apartments,” Kramer wrote. “One is a co-op, the other a condo. Is there any good reason the condo’s taxes are twice as much?” The 421-A Program, Kramer asserts, helps make it possible to build multi-family housing within New York City.
Although it deals exclusively with New York City, the 421-A Program is under the control of the state legislature. Currently the law authorizing 421-A will expire in June. Developers and critics are fervently lobbying the state legislature to keep, amend or kill the program. In all likelihood, the legislature will continue 421-A while modifying some of its terms.
The 421-A Program is just one example of how changing tax laws affect the real estate industry throughout New York. Whether you are buying or selling property, it is always important to work with an experienced New York real estate attorney who can keep you up-to-date on the latest legislative developments. Contact our office today if you would like to speak with an attorney right away.