Understanding the 421-a Tax Abatement Program

The 421-a Tax Abatement Program, which was resurrected last April after nearly a year of stasis, reduces the property taxes on land that is developed for residential use. For several years the owner of a qualifying property pays taxes only on the property’s original value as opposed to the higher value it attains after homes, apartments, or condos are built on the site. At the end of the designated time period, there is a gradual phase-in period before full taxation takes effect.

Created during the 1970s, when New York City was eager to encourage development, the 421-a exemption did not originally have any provisions for affordable housing. During the 1980s provisions were introduced that required developments taking advantage of the exemption in certain areas of Manhattan to either build units that were targeted to income or contribute financially to the construction of affordable housing elsewhere. The affordable housing requirement was later applied to other areas of the city to reflect trends in development.

The program stopped in January 2016 after Governor Cuomo, labor leaders, and the development industry were unable to reach an accord regarding proposed reforms. Now, over a year later, it is back in effect under the name “Affordable New York Housing Program” and offers the following incentive options to New York property developers:

Option A

  • Applies to rental housing developers who build more than six but less than 300 units
  • 25% of apartments must be affordable housing
  • Projects in this category can be financed using low-income housing tax credits and tax-exempt bonds
  • The full exemption period lasts 25 years, followed by a 10 year phase-in period

Option B

  • Applies to rental housing developers who build more than six but less than 300 units
  • 30% of apartments must be affordable housing
  • Projects may be financed using any subsidy made available by the city
  • The full exemption period lasts 25 years, followed by a 10 year phase-in period

Option C

  • Applies to rental housing developers who build more than six but less than 300 units anywhere below 96th Street in Manhattan
  • No additional subsidies may be used for financing
  • The full exemption period lasts 25 years, followed by a 10 year phase-in period

Option D

  • Applies to home ownership developers who build more than six but less than 300 units anywhere below 96th Street in Manhattan
  • Initial assessed value must be $65,000 or less
  • The full exemption period lasts 14 years, followed by a six year phase-in period

With Options E, F, and G, the exemption period is 35 years, and workers must be paid at least $45 an hour in Brooklyn and Queens and $60 an hour in Manhattan

Option E

  • Applies to rental housing developers who build more than 300 units anywhere in New York’s ‘enhanced affordability’ area (Manhattan south of 96th Street and certain areas of Brooklyn and Queens)
  • 25% of apartments must be income-targeted
  • Projects may be financed using low-income housing tax credits and tax-exempt bonds

Option F

  • Applies to rental housing developers who build more than 300 units anywhere in New York’s ‘enhanced affordability’ area
  • 30% of apartments must be income-targeted
  • Projects may use any subsidy made available by the city

Option G

  • Applies to rental housing developers who build more than 300 units anywhere in New York’s ‘enhanced affordability’ area except the area below 96th Street in Manhattan
  • 30% of apartments must be income-targeted
  • No additional subsidies may be used for financing

The Affordable New York Housing Program is set to run until 2022. Its supporters declare that the program is a much-needed galvanizer for New York City’s real estate market, as it enables developers to make market-rate build projects break even in most neighborhoods.

If you are planning to build housing on New York real estate that you own and have questions about how the 421-a tax abatement program can be applied to best advantage, call Rosen Law today. We have years of experience in construction law as it pertains to developers, and will help you devise a strategy that delivers results.

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Our attorneys, admitted to practice law in New York, Florida, New Jersey, Connecticut, Pennsylvania, and Georgia, practice within a wide range of legal areas including business and real estate litigation, Fair Labor Standards Act litigation, complex real estate transactions, preparation of condominium offering plans, business sale and purchase transactions, construction law and litigation, New York City tax abatements, estate planning, probate and probate litigation and much more.

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