Wishing on a Star

When you wish upon a STAR, makes no difference who you are – because every homeowner is eligible for the New York State School Tax Relief (STAR) program, even ones in co-ops and condos.

It wasn’t always so expansive; the first version, enacted in 1997, applied only to senior citizens. But starting in 1999-2000, an additional tier began applying to all ages. And this past March 30, Governor Eliot Spitzer signed legislation creating a new, sub-tier version aimed solely at middle-class homeowners.

So, what do boards need to do in the wake of this legislation? Not much more than they’re doing now. But it’s important that they do it right.

STAR was designed to reduce homeowners’ annual property taxes – the traditional way of funding the public schools – by exempting the first $30,000 of a primary residence’s assessed value. It works by having the state pay school districts a certain amount of money each year from a specially set-aside portion of the state’s personal income tax revenue. The state then reduces homeowners’ property tax by an offsetting amount. So, let’s say the state pays a school district $100,000 from this fund, and 1,000 homeowners live in that district. Each homeowner’s annual property tax bill would be reduced by $100. And last year, the state began sending homeowners an additional rebate check, usually totaling anywhere from $200 to over $1,000.

That cool cash may be cold comfort, however, since a few hundred dollars isn’t much when your property tax has gone up by several thousand, as has been the case in much of New York State – where, over the last nine years, property taxes have increased by 41 percent. Still, boards should know how to apply for, receive, and distribute the rebate.

The first couple of parts are easy. It’s that third that can get tricky, and the new Middle-Class STAR Rebate Program, as the state Division of the Budget calls it, makes it just a mite trickier.

The longstanding versions of STAR are Basic STAR and Enhanced STAR. The former is available to owners of one- to three-family houses, condo owners, and co-op shareholders. There is no income or age limit, but units held by sponsors or their successors aren’t eligible.

The later Enhanced STAR is an additional rebate for homeowners aged 65 or over as of December 31 of the exemption year, with a household income of $70,650 or less. In New York City, the exemption (fiscal) year runs from July 1 to the following June 30.

The newly enacted Middle-Class STAR gives a separate rebate based on a sliding scale of income. For upstate homeowners, the amount of the rebate begins shrinking as annual income exceeds $90,000. For the New York City metropolitan region, where the cost of living is higher, that figure is $120,000. Homeowners with incomes of $250,000 or more get no Middle-Class STAR rebate, though they can still get Basic STAR.

For first-time applicants, the co-op or condo board or its managing agent is required to do the filing, not individual shareholders or unit-owners. You can download the multi-page form from the New York City Department of Finance. There is a separate form shareholders and condo owners fill out themselves, titled “Exemption and Abatement Application for Owners.” A much simpler, two-page form is used not only for STAR but also for exemptions for war veterans, the disabled, the clergy, and others. (For all these forms, see box, page 59, opposite.)

The deadline to file is February 15 for each upcoming fiscal year, with property ownership information accurate as of the preceding January 5. So, since New York City’s fiscal year runs July 1 through June 30, this means that for the 2009 fiscal year, which runs July 1, 2008, to June 30, 2009, applications are due this coming February 15, 2008, reflecting property ownership as of January 5, 2008.

It’s all a lot simpler than it sounds. As Jennifer Christman of Wentworth Property Management, the managing agent of the six-building, 348-unit Nostrand Gardens co-op in Sheepshead Bay, Brooklyn, describes the process: “I give the [exemption and abatement] applications to the shareholders, and they fill them out and send it in themselves. If the shareholders get the form from the city, they bring it to my office and I fill out the management company portion. It takes two minutes.”

For co-ops, once the city processes the applications, the Department of Finance sends the management company a list of names and addresses for each co-op unit and the rebate amount to which each is entitled. The corporation’s property tax bill is reduced by the total of amount of these rebates (or as the city puts it: “Abatements are applied towards the Statement of Account for the entire co-op”) and the corporation pays each shareholder.

And that’s the tricky part. “By law, co-ops have to give it to them within the fiscal tax year,” notes attorney Richard Siegler, a partner at Stroock & Stroock & Lavan. In actual practice, this generally means a credit applied to each shareholder’s monthly maintenance in the amount of the rebate. Since few co-ops have the cash flow to apply everybody’s rebate in a single month, they usually spread it out over several months. (You also usually combine it with other tax rebates, such as veterans’ abatements and the Senior Citizen Homeowners’ Exemption, or SCHE.)

“We receive a Department of Finance printout that lists how much credit or abatement each person gets,” describes Denise Clarke, Wentworth’s accounting supervisor. “So, let’s says Denise Clarke is going to get a $500 STAR tax credit and a $400 veteran’s credit or whatever. We send the report to the board and then the board decides how to distribute it – a one-time credit or over months.

“The only things we [as a management company] have to do is make sure we get [distribution] instructions back from the board – most boards give a maintenance credit over seven or eight months – and make sure people on the list have not moved or died. The STAR abatement goes with the unit, so if you moved, it applies to the next owner.”

“Move” doesn’t just mean if the shareholder has sold the apartment and moved out: STAR applies to primary residences only, so if a shareholder is subletting his or her co-op and living and voting in Florida, he or she can’t claim the rebate.

Many co-ops, with other forms of shareholder tax abatements, assess shareholders a per-share fee equal to the amount of the rebate. Shareholders see neither the reduction nor the assessment on their monthly maintenance bill since they cancel each other, and the building raises revenue in what most boards consider a relatively painless way: people don’t miss what they never had.

You can’t do that equitably with STAR, however, since Basic STAR gives a $30,000 exemption on a home’s assessed value, and Enhanced STAR gives eligible seniors a $56,800 exemption. Simple mathematics tells you this means shareholders getting the lower exemption would wind up paying a bigger per share assessment than shareholders getting the larger exemption. Condo owners are treated the same as homeowners and get rebate checks and tax credits directly.

The newly enacted Middle-Class STAR gives a separate rebate based on a sliding scale of income. For upstate homeowners, the amount of the rebate begins shrinking as annual, adjusted gross income exceeds $90,000. For the New York City metropolitan region, where the cost of living is higher, that figure is $120,000. Homeowners with incomes of $250,000 or more get no Middle-Class STAR rebate, though they can still get Basic STAR. The state tax department began mailing applications to New York City homeowners on July 16, 2007, with a deadline of November 30 for the form to be filled out and returned. Or, instead of mailing it back, you can complete the submission online (see box, at left). A small, additional STAR benefit goes directly to taxpayers as a form of credit on your New York City Personal Income Tax (PIT) filing. Married individuals filing joint returns get a $290 credit, and individuals get a $145 credit, subject to a $250,000 income cap. This relatively small addition carries the acronym STAR PIT.

In any case, the new Middle-Class STAR, like its two sister STARs, may not enhance the co-op or condo bottom line, but it assists shareholders and owners in making their monthly payments. In that respect, this additional benefit helps just that little bit more.