Tax Abatements May Sound Simple, but They're a Jumbled Mess

Just when you thought it was safe to re-enter the world of tax abatements, the city’s Department of Finance (DOF) is reportedly about to turn everything upside down. Condo owners especially may have to forget what they thought they knew. If the proposed changes take effect, condominium owners may find it is a different – and more complicated – ball game. And for co-op boards and shareholders, it could mean the loss of a change instituted only this year.

In the past, many co-op boards levied an assessment equal to the city’s abatement as a way to generate needed operating funds, or bolster reserves. So, if a shareholder got an abatement for, say, $1,000, the co-op levied a $1,000 assessment, and it all equaled out. In previous years, $100,000 in tax abatements to shareholders translated into $100,000 in income for the co-op.

What seemed simplicity itself was complicated three years ago when New York State changed the law that dictates who is eligible for the Cooperative and Condominium Tax Abatement Program. Beginning in the 2012-2013 tax year, shareholders became ineligible for the abatement if the co-op was not their primary residence. In co-ops, the abatement question suddenly required a great deal more effort by managers.

“It sounds simple in theory but it’s a jumbled mess in practice,” explains Alex Kuffel, president of Pride Property Management. “When the change was made to exclude non-primary residents, it became infinitely more complicated.” What if a shareholder used his apartment as a pied-a-terre, or sublet it for a year? And what happened if a non-resident shareholder who no longer received the abatement sold it? The new owner would now be a primary resident and would have to apply again for the abatement.

What all this meant was that the city’s co-op abatement spreadsheet became riddled with errors, and management had to update the city about who was living where. Some months later, the city would then issue a revised spreadsheet, and that would often still include errors and have to be revised yet again. In fact, about 10 percent of the properties listed on the city’s spreadsheet are in error, listing primary residents as non-primary and vice versa, according to George Hatch, director of finance at Pride.

Correcting errors is equally involved. For instance, Pride received the city’s spreadsheets with data for the 2014-2015 tax abatement in December of 2014. In determining who is eligible, the co-op is supposed to base it upon who is a primary resident as of January 5, 2014, and they have until February 15, 2015, to correct errors.

It can get confusing. If you purchased your apartment between January 6 of one year and January 5 of the following year from a primary resident, you’re getting the abatement that was intended for the previous owner. If that previous owner was a non-resident, however, you are not eligible for an abatement even though you are a primary resident. You must let the DOF know that the situation has changed. The abatement always lags one tax year behind the reality.
 
Further complicating matters: most managing agents receive forms and queries from the city on paper, not electronically, which means that they have to enter data themselves into a spreadsheet or keep track the old-fashioned way. Doreen Berksteiner, DOF’s deputy director of operations, says that if managing agents request it specifically, they can often receive information on primary residences electronically.
But she doesn’t encourage it, saying: “This is a laborious task on our end so we try to keep the numbers at a reasonable level. For people who have a large amount of properties, we do hear their cry and try to work with them.”

Welcome to the cutting-edge world of New York City property tax abatements.