Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: I bought a condo in Brooklyn 10 years ago, and the tax abatement is set to run out in a couple of years. What should I expect when it does?
"Assuming your tax abatement isn’t extended–and they rarely are–you should expect your annual real property tax bill to increase," said Nicholas G. Moneta, an associate at Farrell Fritz law office in Uniondale, New York.
You’ll likely be paying property taxes comparable to what others in your neighborhood typically pay, he said. He added that some condo owners have reported monthly tax surges of more than 400%.
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New York City started the tax abatement program, called the 421a Exemption, in the early 1970s, when people were moving out of the city and residential development had slowed down, explained Paul Shapses, partner in the Real Estate Group of Pillsbury Winthrop Shaw Pittman, a New York City law firm. The program since has undergone changes in general requirements and geographical focus, but its purpose remains the same: Attract buyers and developers to stay in the city.
"The 421a program searches for underutilized areas of New York City to exempt so that developers may be incentivized to build new condominiums there," Mr. Moneta said.
The abatements, essentially property tax subsidies that last 10, 15, or 25 years, offset the cost of owning property, Mr. Moneta said.
For example, on a 10-year abatement, taxes are typically raised by 20% every two years over the final eight years, he said. During the first two years, a unit owner likely pays taxes that were assessed on the lot before the unit was built, he said. If property taxes were $3,000 per month before construction, he explained, the owner would expect to pay $3,000 a month in property taxes for the first two years. Thereafter, "they would see that number increase by 20%," Mr. Moneta said. "Being that you bought your condo 10 years ago, you may have already experienced tax increases."
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As the abatement phases out and the tax increases, owners who didn’t plan adequately may not be able to afford them, Mr. Shapses said. "It is not unusual to see sales prompted by the looming expiration of the tax benefits," he said.
For additional information about tax abatements, consult your tax advisor and the managing agent of your condo board, Mr. Moneta suggested.
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