New York’s 421-a Tax Exemption Program Re-Established in 2018 Budget Act
- Apr 28, 2017
Included in New York State’s enacted FY 2018 budget is a provision that revives the §421-a Tax Exemption Program, now called the Affordable New York Housing Program. The Affordable New York Housing Program gives developers of certain new residential buildings a tax break from New York City real property tax if they meet certain conditions. The program will likely generate an increase in the construction of affordable housing units.
In general, buildings with 6 or more dwelling units starting construction after January 1, 2016, and prior to June 15, 2022 that complete construction before June 15, 2026 may be eligible for the program. In certain cases, projects may be eligible even if they started construction before January 1, 2016.
Owners of buildings may elect from a list of 7 different affordability requirement options. The affordability requirements essentially outline how many units of a project have to be occupied by people who make certain incomes. The options differ based, in part, on the income of the building’s tenants, the percentage of the building units occupied by tenants with certain incomes and governmental assistance the building may be receiving.
In a significant change from the previous program, developers may be obligated to comply with a wage requirement as well. The wage requirement requires developers of buildings with 300 or more rental units located in so-called “enhanced affordability areas” (the legislation explains “enhanced affordability areas” as precise areas located in parts of Manhattan, Queens and Brooklyn) to pay construction workers $45 an hour or $60 dollars an hour, depending on where the project is located. Projects outside the enhanced affordability areas may be able to opt in to receive benefits.
Although the program requires compliance with multiple regulations, the benefits can be very lucrative for developers. Under the updated program, qualified projects may receive an “enhanced 35-year benefit” which allows a 100% exemption from New York City real property tax for the construction period and a 100% exemption from New York City real property tax for the next 35 years.
Other projects can qualify for a “35-year benefit” which allows for a 100% exemption for the construction period, a 100% exemption for the first 25 years and a partial exemption for the remaining 10 years, calculated based on the percentage of the affordable units in the project. In addition, homeownership projects (meaning condominiums and cooperatives not located in Manhattan with less than 35 units) that qualify for the program may receive a 20-year benefit. A 20-year benefit allows for a 100% exemption for the construction period, a 100% exemption for the first 14 years and a 25% exemption for the remaining six years.
This provision takes effect immediately, with parts in full force and effect on or after January 1, 2016.
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Richard J. Shapiro
Richard Shapiro, Tax Director and member of EisnerAmper Financial Services Group, has more than 40 years' experience in federal income taxation, including the taxation of financial instruments and transactions, both domestic and international.
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