THE WISH LIST:
I’m looking to buy a condo and am particularly interested in buildings with tax abatements (30-year would be best!), so I can save a little bit of money. Any suggestions?
“A tax abatement is an exemption or reduction of real estate taxes instituted by the government in order to stimulate development of new and more housing stock,” says Geller. “The city has a vested interest in development, and if they want a particular part of the city that may not have flourished to do so, they will offer an abatement in order to stimulate development.”
As such, tax abatements are usually applied to projects in emergent areas, such as Hudson Yards; they're also seen in the outer boroughs, simply because there's room for developers to build. Plus, if an area is still developing, it's one way the city can encourage real estate activity there.
“Abatements generally last 10 years, but zoning will determine the length of the abatement," says Geller. "If the city wants to give an extra push to stimulate development in certain areas, then the abatement can be set in place for a longer amount of time." Longer-lasting abatements are usually found in upper Manhattan, where the city is looking to stimulate movement and development, she says.
But sometimes, tax abatements are offered in ultra-luxury projects, and this has in the past—as with the super-high-end One57 and other developments reported in this New York Daily News article, engendered outrage among New Yorkers. "Ultra-luxury buildings receive tax benefits in exchange for creating a certain level of affordable housing within the structure," she explains. "Confusion sometimes comes when people don’t realize that the affordable housing is being created. They only see a huge tax break offered to an already wealthy population.” (Of course, the abatement wasn’t the only reason people were infuriated by the goings-on at One57. The city’s Independent Budget Office calculated that the building received an additional $16 million property tax discount in 2014 due to a state law that somehow put crazy-low assessed values on some of Manhattan’s most expensive addresses.)
So how exactly do they work? “Tax abatements start off with 100 percent relief from property taxes, while increasing gradually thereafter,” says Geller. In other words, the buyer doesn't pay taxes at the start. “In a standard 10 percent abatement, the rate increases every two years until you are back where taxes should be.”
There are a few different kinds of tax abatements currently on offer in New York City, the most common of which is the 421A abatement, which incentivized developers—many in a wave of activity in the mid-2000s—to add condo housing throughout the city (and which recently expired).
While this abatement is the one most folks know about, there are in fact, other types of residential abatements. The J51 abatement is for residential buildings undergoing renovations and was designed so that owners of older and potentially run-down buildings will feel compelled to renovate. There’s also the Senior Citizen Rent Increase Exemption (or SCRIE) for citizens 61 years or older who make under $50,000 a year and live in rent-controlled or rent-stabilized apartments.
Advantages of buying a unit with a tax abatement in place include the fact that you can use the money you save to pay off more of your mortgage. Or, suggests Geller, “You can save it to bolster your bank account to pay the taxes later.”
A major disadvantage, however is that when you buy such a property, you need to seriously think about how long you’ll be there. “If you are looking for something long-term, you need to consider if you’ll still be able to afford the [taxes on the] place when your abatement expires,” says Geller.
In addition, developers sometimes charge higher prices for abated condos since they figure that because taxes are so much lower than usual, buyers will be willing to pay more upfront. As a result, it can be extremely hard to discern a good long-term buy versus something that just seems like a good buy right now. Geller suggests working with a good broker who can help you do all the math.
While buildings with tax abatements can be found throughout New York City, places with 30-year abatements are still incredibly rare. “I would suggest looking for the best overall value—location, price, common charges and taxes—as opposed to just the 30-year abatement,” advises Geller.
Check out some of these abated units:
Prospect Heights one-bedroom, one-bathroom condo, $720,000: Located in a new development at 735-737 Bergen Street between Washington and Underhill Avenues, this one-bedroom apartment has white oak herringbone wood flooring throughout, a stainless steel kitchen, a bathroom with a deep-soaking tub, and washer-dryer hookups. The building has a rooftop terrace, and is just a hop, skip and a jump from Prospect Park. Common charges are $574 a month, and taxes are $387 a month due to a 421A abatement.
Gramercy one-bedroom, one-and-a-half-bathroom condo, $1,560,000: This turnkey condo at 300 East 23rd Street between First and Second Avenues is just a block from where the Second Avenue subway will be. The floor-through loft-style apartment has 10-foot ceilings, a home office, central air and heat, a private terrace and in-unit laundry. The full-service building offers a 24-hour doorman, a package room, a fitness center with a sauna and a massage treatment room and an outdoor garden with a movie screening area. Common charges are $1,344 a month and taxes are $402 a month thanks to a tax abatement.
Prospect Heights two-bedroom, two-bathroom condo, $829,000: This boutique condo building at 525 Vanderbilt Avenue between Atlantic Avenue and Fulton Street offers incredibly low common charges (just $334 a month) in addition to an abatement that renders taxes just $20 a month. This true two-bedroom floor-through unit is more than 1,000 square feet, and has hardwood floors, a stainless steel kitchen, a shared backyard with apple, cherry and pear trees, as well as a deeded storage unit.
Harlem two-bedroom, two-bathroom condo, $949,000: This south-facing unit at 106 West 116th Street between Malcolm X Boulevard and Adam Clayton Powell Jr. Boulevard features granite countertops, hardwood floors, beamed ceilings, stainless steel appliances, central air, washer-dryer hookups and a walk-in closet in the master bedroom. Building amenities include a part-time doorman, a common terrace, a free private storage locker, a bike room and an exercise room. Common charges are $936 a month, and taxes are just $42 a month—and the abatement doesn’t end until 2033.