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New York City Mayor Introduces Plan to Overhaul 421-a Program before its Expiration
Practical Law Legal Update 1-611-7545 (Approx. 3 pages)
New York City Mayor Introduces Plan to Overhaul 421-a Program before its Expiration
by Practical Law Real Estate
| Published on 11 May 2015 • New York |
New York City Mayor Bill de Blasio has proposed sweeping reforms to the popular 421-a partial tax exemption program in the face of its upcoming expiration on June 15, 2015.
The 421-a partial tax exemption program, an extremely popular state-legislated tax incentive designed to encourage developers to create affordable housing in New York City, is set to expire on June 15th. After months of anticipation, Mayor Bill de Blasio has announced his proposed reforms to the program.
421-a Partial Tax Exemption Program
The existing 421-a partial tax exemption program offers property owners reduced property taxes on new construction residential projects for a period of anywhere from ten to 25 years based on the value of the new construction. The program is available for condos, co-ops or rentals. To qualify for the exemption, the new construction must include an affordable housing component with three or more units built on lots that are:
- Vacant.
- Predominantly vacant.
- Improved with a nonconforming use three years before construction.
These developments are typically "80/20" buildings, meaning that 20% of the units are designated as affordable housing and 80% of the units are free market. Under the program, property owners of eligible buildings are exempt from paying the property tax increase that results from the new construction. In other words, the property taxes owed are still based on the original assessed value of the land before it was improved by the new construction project. This scheme provides great incentive for developers of new construction residential projects who may then pass along these savings to buyers and renters.
The current program is set to expire on June 15, 2015, which means that unless the program is renewed, any new project seeking to benefit must commence construction under a new building permit by that date.
Mayor de Blasio's Proposed Reforms
After months of anticipation and speculation over renewal, Mayor de Blasio proposed several changes to the current program, which must be approved by the state legislature to go into effect. Some of the proposed changes include:
- The tax abatement stops applying to condominium projects.
- For rental projects, developers must designate 25% to 30% of their building as affordable housing, and the abatement would last for 35 years.
- The establishment of a new mansion tax (in addition to the current mansion tax imposed on sales of homes over $1 million) of:
- 1% for sales of homes over $1.75 million; and
- 1.5% for sales of homes over $5 million.
The estimated $200 million in revenue generated from the additional mansion taxes will be earmarked for creating affordable housing in New York City. The Real Estate Board of New York has already voiced its support for the mayor's plan.
To take advantage of the existing 421-a property tax exemption benefits before the sunset date, developers and property owners should:
- Take immediate action to determine the eligibility of their projects.
- If applicable, prepare the appropriate paperwork to submit for filing within the next few weeks.
For more information, property developers and owners should consult the New York City Housing Preservation & Development website.