On May 10, 2016, New York City Mayor Bill de Blasio signed Intro 1118 into law to extend the J-51 tax abatement program for conversions, alterations, or improvements to multifamily residential properties completed by June 30, 2019. The prior J-51 program expired on December 31, 2011, but this extension permits current property owners to take advantage of the program. The Mayor noted that J-51 benefits are an essential tool for maintaining and preserving affordable apartments, even though they may also apply to certain market-rate properties.

Earlier this year, New York Governor Andrew Cuomo announced an action against building owners that receive J-51 tax benefits to ensure compliance with rent regulations (see Legal Update, Cuomo Enforces J-51 Rent Regulations and a Cautionary Case for Landlords).

The J-51 tax program was originally established to encourage landlords to make improvements to older rent-regulated multifamily residential properties. Historically, and since the J-51 program expired in 2011, owners of older rent-regulated buildings have been hesitant to make significant capital improvements (such as new heating, plumbing, or windows) because they faced increased property tax assessments without being able to recoup their expenditures through increases in rent.

Under the J-51 program, landlords can recover 75% of the cost of significant improvements by reducing either the:

Commercial landlords can receive J-51 tax benefits for converting their buildings to class A multiple dwellings. However, any increase in gross cubic footage to the building is subject to normal tax treatment.

J-51 tax benefits may also be combined with additional economic incentive programs, particularly for properties containing affordable housing that qualify under the voluntary Inclusionary Housing Program (IHP) or Mandatory Inclusionary Housing (MIH) program.

Landlords that receive J-51 tax benefits are prohibited from increasing rent using luxury decontrol provisions, meaning the landlord cannot avoid rent regulation laws if a tenant's rent or income exceed certain threshholds.

Counsel for property owners of multifamily residential property in New York City should be aware of the benefits of the J-51 property tax program. The potential tax savings, particularly when J-51 benefits are combined with other tax abatement programs, can be significant.

Under the current program, all conversions, alterations, and improvements must be completed by June 30, 2019.