Understand Your Choices in Tax Benefits

Carl Borenstein
President, Veritas Management

Understand Your Choices in Tax Benefits

Setting the Scene

My story today deals with a 77-unit cooperative in the Bronx. As the board did its budget for 2017, it anticipated receiving its co-op tax abatement and then assessing shareholders against that abatement. The abatement would generate additional funds, because the sponsor and non-primary residents would not be eligible for the abatement, but they would still have to pay the assessment. The building had also recently completed a very large capital project and applied for and received a J-51 tax abatement. However, when they received their property tax bill they found that they were also granted a J-51 tax exemption for the capital work. The problem: when a building has a J-51 exemption, they can’t participate in the co-op abatement program.

Following the Action

As the new property tax figures for 2016 and 2017 came in, we realized that the J-51 tax exemption made all the shareholders ineligible for the abatement, not just the sponsor and non-primary residents. This meant that the co-op was going to lose an additional $15,000 a year, money that they would have collected from the sponsor and non-primary residents. The co-op could fight the city to remove the J-51 exemption so that all the primary residents could go back into the co-op abatement program. If they did that, however, the co-op would have to agree to never apply for a J-51 exemption again. The risk to this strategy is that the co-op abatement program is not a sure thing. It only goes for two to three years at a time and requires periodic renewals by the city and the state.

However, should the co-op keep its J-51 exemption, which is a 28 percent tax break – $61,000 this year – the situation is less fluid. The exemption program is solid for at least the next 14 years. The co-op has to decide which avenue to pursue.

Doing It Right

When co-op boards are preparing their annual budgets, they need to pay close attention to what kind of tax exemption or abatement the city will be providing them. The city will put your building in one tax abatement or exemption bucket, and you need to understand what it is, what the benefits are, and what your options are.