Prior to the recent change in the the co-op/condo tax abatement, the corresponding assessment that many buildings used was essentially vapor money. For example, a building's actual property taxes might be $300,000 but the city would bill the building only $247,500 thanks to the 17.5% abatement. The co-op's budget and maintenance would be based on this reduced figure for RE taxes. Then the city would say, "You know that $52,500 we didn't bill you? Now you have to give it back to your shareholders." So the co-op would impose a per-share assessment that canceled out this rebate that was paid and refunded only on paper. (To emphasize: this MUST be a per-share assessment like any other assessment.)

The alternative was to base the budget and maintenance on the full $300,000 charge and then refund real money that was collected during the year as additional maintenance. But it works out to the same dollar amounts; it just depends on whether you want to overbill and give part of it back, or charge the actual amount you pay in taxes and cancel out the vapor money with an assessment. Either way works fine, though my impression is that the assessment approach is more popular. Maintenance will reflect actual charges and will not be artificially inflated to give back part of it as an abatement.

Now that the "primary residence" horror is upon us, things get nastier since the per-share assessment will NOT be vapor money for those whose homes are not their primary residence. So now you can have an assessment that's real money for some shareholders, or you can raise maintenance to cover the cost of actually refunding the abatement to the reduced number of shareholders who qualify for it. Again, it's perfectly fair either way - and shareholders will pay basically the same amount of money in both cases - but it's difficult to explain to shareholders and you're bound to annoy some people no matter how you do it.

The bottom line for your original question: this isn't an assessment that would ever go into the reserve fund for capital improvements. It's an accounting method in one case, and artificially increased maintenance that you give back to the shareholders the same year in the other case.

Thanks! Great info!
What if the coop included the amount of the total tax - including the abatement - abatement in their budget - would that be poor planning?
Also shouldn't the total amount assessed for be the actual amount minus the sponsor portion? For example, if the sponsor owns 30% and since he does not receive the abatement - then each regular shareholder should realize a 30% break via the assessment. After all, the abatement is really intended to give property owners a break. Not to be sucked money out of them. While I understand the intention it just seems like another way not to focus on truly reducing costs. So much of the cost seems due to management ineptitude, naive Boards and general suspectbilty to ongoing money leaking.

No, it's not considered bad planning to budget for the total tax (including the abatement) and then give back the extra money as a cash refund to shareholders who qualify. Many well-run buildings use that approach, and it's fine. The main disadvantage is that it makes your maintenance higher, which is a downside for potential buyers.

Although it's counterintuitive, the assessment technique still works fine under the new scheme, without adjusting for sponsor units or other non-primary residences. The only difference is that the assessment becomes real money for shareholders who don't get the abatement. Here's an example.

Suppose there are 10 units in the building and each has 10 shares. Under the old scheme, if each unit was due a vapor-rebate of $100, you would impose an assessment of $10 per share. No one pays any real money, the books balance, and your maintenance charges reflect actual expenses. (By the way, this is the approach we use in our building.)

Now suppose there are two sponsor units among the 10. The total rebate is now only $800 instead of $1000. But you STILL assess at $10 per share. Each of the units due a $100 refund breaks even, and the two sponsor units owe $100 each, in real money. This works out exactly right if your budgeted RE tax reflects a flat abatement of 17.5% for the whole building, as if everyone were going to get the refund. Those who don't qualify will pay the extra amount they owe via this assessment, and you will end up with exactly the right amount to pay the tax collector.

This is quite complicated to explain to shareholders - especially the retroactive clawback to mid-2012 for rebates already paid. In my opinion, the whole "primary residence" requirement is a poorly considered adjustment to a bad tax law that was only intended to be a Band-Aid in the first place. None of this abatement stuff was meant to be permanent; our legislators were supposed to come up with a tax scheme that was fair to co-op and condo owners without adjustments.

A follow-up question for any accountants or experienced treasurers on Board Talk: if you're planning to continue with the abatement/assessment model, how are you going to reflect that in your budget? The idea is:

[Unadjusted tax minus full 17.5% abatement] + [Net real-cash assessment] = [Actual tax bill]

But if you do it like that, then the assessment gives the impression that it's not per-share, even though it is. Suggestions?

Ironically, this is one argument for budgeting the full tax amount and then inflating maintenance in order to have real cash to give back to the shareholders who receive the abatement. It will certainly be clearer in the budget under the new model.

With the new rules how you reflect the numbers in the budget stay the same as before. The only change is that some people will have a real assessment to pay once a year. In our building about 15% of the shareholders will have their abatements phased out. For the other 85%, they will have a monthly maintenance that is the same amount every month, except for the small variation in the month when our building applies the abatement/assessment charges. The 15% will have to budget their own finances to handle the assessment without the abatement.

Thanks, Burt - I see what you're getting at. If you budget three separate line items - taxes minus full abatement (payable), partial abatement (payable), and full assessment (receivable) - then things will balance out as they have before, regardless of how many shareholders pay actual money for the assessment. We had moved to a simplified model of listing only the actual tax bill and footnoting the abatement/assessment, but may well go back to the three-line model this coming year.

Also, with respect to shareholders who have to pay the assessment with real money, we'll almost certainly allow them several months to do so. That's what we've done with the retroactive clawback to mid-2012. The affected shareholders have four months to pay the extra taxes. If they sell during that period, they must pay the full balance at closing.

What about people who were assigned shares in May of June of this year?

At year end, our mgmt. co. prorates the share of property taxes paid and mortgage interest paid for the year and issues 2 1098's, one to the current owner ands one to the previous owner. The owner at the time of the tax credits/assessment will be billed for the full assessment and receive the full credit. It's up to the attorneys to take that into account at closing, just as one might adjust the value for 200 gallons of oil in a heating oil tank in a home sale.