A New Condo Tax Abatement Headache

Historically, condominium unit-owners have applied for and received the real estate tax abatement individually because they pay their taxes personally. As a result, the abatement comes directly to them, not through the association. And condo boards, unlike co-op boards, have not levied assessments that match abatements, a way of feeding the association’s coffers.

Someone in city government apparently looked at the much simpler approach taken by condos – no assessment, no fuss – and tried to apply it to co-ops. In a new procedure that began in 2015-2016, the tax abatement can currently be applied for directly by the co-op shareholder, just as a condo unit-owner does. In the form, shareholders have to verify that the unit is used as a primary residence.

But in a variation on the saying, “No good deed goes unpunished,” the city may not let that change stand. Doreen Berksteiner, deputy director of operations at the Department of Finance (DOF), says that as of the 2017-2018 tax year, co-op and condo owners will no longer be able to use the “direct application” form for the abatement. In an even bigger switch, condo residents will now have to file for and receive their abatement through their condo association or managing agent. 

In an e-mail, DOF spokeswoman Sonia Alleyne says, “We are in the process of developing a Condominium Tax Benefit Change, which will be used by condo managing agents to apply for the abatement for condo owners...as is done for co-op shareholders.”

Preventing condo owners from filing for their abatement individually would radically change the process for condo owners and make them use the system that co-ops have been forced to use – one that most managers agree is time-consuming, onerous, and rife with inaccuracies.

“I’m not sure how it would even work, since the individual unit-owners in a condo each receive their own real estate tax bill,” says George Hatch, director of finance at Pride Property Management, adding that he has received no official word of the change from the city. “The tax bills don’t come to us. So how would management know who’s receiving an abatement?”

The DOF offers no explanation concerning how or why this change is coming about. The agency also would not explain why the decision was made to abandon the recently instituted policy that allowed co-op shareholders to file and receive an abatement directly using the tax benefits application form.

In light of all these headaches, some co-op boards may want to reconsider long-standing policy and abandon the abatement-inspired assessment. Many boards – where large percentages of residents are non-primary – are doing just that, according to attorney Eva Talel, head of the Cooperative and Condominium Board Representation Group at Stroock & Stroock & Lavan.

“In those cases,” she says, “they are going back to the more traditional way of deciding ‘Does the building need the money now? Is this something that needs to be done?’ They may wind up doing an assessment in the same year or even [for] a similar amount, but it’s no longer a lock-step painless way of raising money. It becomes a question of ‘Did you count on this to increase your reserves?’ In that case, you might start to phase it out.”

Most boards have a hard time envisioning life without that extra cash. “Many co-ops have grown dependent on it as a vital part of their annual operating budget,” says Alex Kuffel, president of Pride Management. “To reduce or eliminate it [would mean that] the income must be made up elsewhere, which typically means a maintenance increase. Faced with that choice, most of our boards reluctantly decide to continue the assessment.”