What Is a Co-op Tax Abatement Assessment in NYC?

A co-op tax abatement assessment allows a co-op to raise additional revenue for ongoing building operations and capital improvements by ‘capturing’ tax abatement or tax exemption proceeds paid to the co-op corporation by the city of New York instead of returning this money to shareholders.

The co-op tax abatement assessment is most commonly used by co-op buildings to pocket the Cooperative and Condominium Tax Abatement benefit.

This abatement is a property tax reduction of 17.5% to 28.1% for eligible co-op and condo owners who use their apartment as a primary residence.

Co-op shareholders who are being assessed generally see two transactions on their monthly co-op maintenance statement: a debit for the amount of the building assessment as well as a credit in the amount of the co-op tax abatement being paid by the city. Because these two entries are a wash, it means that the shareholder does not have to physically pay any money to the co-op despite the fact that an assessment is being levied. Details on any tax abatement and related assessment will also appear in a co-op’s annual financial statement.

The co-op tax abatement assessment is a legal and increasingly common strategy for co-ops to raise revenue without requiring shareholders to contribute cash directly as would be the case for a maintenance increase or for an assessment not directly linked to a tax abatement.

How Does a Co-op Tax Abatement Assessment Work?

A co-op tax abatement assessment is authorized by the Board of Managers, also known as the co-op board. If a co-op chooses to levy an assessment, shareholders will receive both a credit and a debit on their monthly maintenance statement. The debit is the amount of assessment, which is based proportionally on the number of shares assigned to each unit, and the credit is the prorated share of the tax abatement paid by the New York City Department of Finance.

In most cases, these entries create a wash which means that shareholders are not required to pay any money to the co-op.

The details of a co-op tax abatement assessment will typically appear in the ‘Notes to Financial Statements’ as part of the building’s annual financial documentation which is provided to shareholders.

A co-op tax abatement assessment allows a co-op to raise revenue by capturing tax abatement proceeds paid by NYC instead of returning the money to owners.

Here is an example of one such note for a co-op in Greenwich Village:

During the year ended December 31, 2014, the Board of Directors approved a special assessment in the amount of $201,302 or approximately $3.13 per share, which represents the amount of the real estate tax abatements the shareholders received for the tax year 2013/2014. This money was used to fund operations.

During the year ended December 31, 2013, the Board of Directors approved a special assessment in the amount of $198,338 or approximately $3.03 per share, which represents the amount of the real estate tax abatements the shareholders received for the tax year 2012/2013. This money was used to fund operations.

An operating assessment was scheduled for 2015 at $3.15 per share and will be offset by the 2014/2015 real estate tax abatement.

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Are Co-op Tax Abatement Assessments Legal?

Yes. In fact, co-op tax abatement assessments are becoming increasingly common in NYC as co-op buildings look for ways to make ends meet in the face of steadily rising costs. While co-op tax abatement assessments still take money out of the pockets of shareholders, the silver lining is that shareholders don’t actually feel like they’re being assessed since they never physically receive the abatement money in the first place.

This is similar logic to automatic income tax withholding for salaried W-2 workers. While employees are still paying considerable amounts of income tax, the automatic withholding reduces the psychological impact of the tax since the employees do not have to experience the emotional trauma of receiving this additional income only to have to pay it all back to the government.

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Am I Eligible for the NYC Co-op Condo Tax Abatement?

The co-op condo tax abatement is only available to owners who use an apartment as a primary residence. This means that pied-a-terres do not qualify for the abatement.

The full list of requirements is below:

  • The co-op or condo unit must be the owner’s primary residence.

  • Co-op or condo owners cannot own more than three residential units in any one development and one of the units must be the owner’s primary residence.

  • Property must be classified as a Class 2 property.

  • Properties that are part of the Urban Development Action Area Program (UDAAP) cannot receive the abatement.

  • Co-op or condo owners cannot be receiving any of the following exemptions or abatements: J-51 exemption, 420c, 421a, 421b, or 421g

  • Cooperative properties are not eligible for the Clergy exemption

  • The co-op or condo property cannot be: a Housing Development Fund Corporation (HDFC); a Limited Divided Housing Companies, Redevelopment Company; a Mitchell-Lama Building or in the Division of Alternative Management Programs (DAMP) Program.

  • Units owned by a business (LLC) are not eligible.

  • Units held by sponsors or their successors in interest are not eligible.

  • Units owned by a trust are eligible only if the unit is the primary residence of the beneficiary of the trust, trustee, or life estate holder.

Managing agents and boards of directors must apply for and renew the cooperative and condominium property tax abatement on behalf of their entire development. If you’re eligible but have not yet applied, please contact your managing agent. If your building is self-managed, please contact your Board President or the Treasurer.

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Do Condos in NYC Levy Tax Abatement Assessments?

No. Condo buildings are not in the same advantageous position as co-ops when it comes to levying tax abatement assessments. This is because condo buildings do not receive abatement monies directly from NYC. Instead, individual condo unit owners receive the tax abatement on their individual quarterly property tax bills. As a result, condo boards do not have as much leverage as co-op boards since the latter receives the cash directly.

There is no perceived advantage for a condo to levy an assessment in the amount of the building’s collective abatement proceeds since it would still result in owners having to physically upfront the cash.

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Published 03/30/2020
Disclosure: Hauseit® and its affiliates do not provide tax, legal, financial or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, financial or accounting advice. No representation, guarantee or warranty of any kind is made regarding the completeness or accuracy of information provided. Hauseit LLC is a Licensed Real Estate Broker, licensed to do business in New York under license number 10991232340. Principal Office: 148 Lafayette Street, New York, NY 10013.

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