New York's Cooperative and Condominium Community
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Cooperatives and tax breaks: the past recaptured with a profit.
What does your building need to do to qualify for landmark tax credits?
A touch of history can pay off in a big way.
Take Dunolly Gardens. The 360-unit Queens complex earned thousands of dollars in tax credits because the property is listed in the National Register of Historic Places. The National Register is the official federal list of historically significant districts, sites, buildings, structures, and objects.
For co-op and condo boards, historic designations have often brought little beyond the honor of being recognized (usually a plaque). Owners of private property listed in the National Register are free to maintain, manage, or dispose of their property as they choose, provided that no federal money has been spent on restoration. »
It can get costly, however, if the New York City Landmarks Preservation Commission (LPC) becomes involved. Costs go up as the LPC reviews and requires historically accurate repair work in LPC-designated districts or buildings (which are often, but not always, the same as properties listed in National Register districts).
So, how do you get tax credits?
“The first thing people think about when they hear about a ‘historic’ tax credit is a picture in the magazine Georgian Colonial of a period freestanding house,” says Murray Gould, principal in Port City Preservation, a company that assists buildings in getting tax credits. But, he notes, the law has been evolving. “You’ve always had, on the federal level, I’ll call it a historic tax credit, for commercial revitalization of historic properties.”
Many states have added to that federal credit with companion or lesser state credits. One of those is the New York State Homeowners Credit, a law that became effective in 2009 that earns eligible tenant-shareholders and unit-owners of co-op and condo apartments tax credits for doing repairs to the exterior and interior of the building.
That brings us back to Dunolly Gardens. Three years ago, the co-op hired Gould to evaluate how the program would work for them and to help the property apply. Dunolly Gardens eventually became the first and largest co-op in New York State to take advantage of the homeowners tax credit – but it probably won’t be the last.
What the New Law Does
When the homeowners tax credit was first being developed, Gould was among those pushing to include co-ops and condos. “I felt they should have equal footing with the classic single-family historic house,” he says now.
Once it passed, the new law changed the definition of a historic home to include buildings that just happened to be condominiums or cooperatives. “In New York State, you earn a 20 percent credit for the work that is done: a dollar for dollar offset against [your] tax liability,” says Gould.
To qualify, the building must be an owner-occupied residential structure – sublets are not eligible – listed with either the State Historic Preservation Office or the National Register of Historic Places, or located in a state or nationally registered historic district and certified as being of historic significance to the district. Designation by the Landmarks Preservation Commission doesn’t determine eligibility for the credit, but the LPC has oversight over the scope of the work.
To further qualify:
• You must own and reside in the historic home in New York State in the year for which you claim the credit.
• Qualifying rehabilitation costs for the project must be $5,000 or more of which five percent must be for exterior work.
• You must receive preliminary approval before beginning construction and a Certificate of Completion once the work has been completed from the New York State Office of Parks, Recreation, and Historic Preservation.
The home must also be located in:
• a federally qualified census tract or area of chronic economic distress, or
• a census tract that is at 50 percent or below the state family median income level.
There are thousands of census tracts in New York City, explains Gould. So when you call up to see if you are eligible to receive the credit, your address gets checked against a master list of those census tracts to see if you meet the qualification requirements.
How the Credit Is Allocated
The credit is then allocated among the shareholders or unit-owners of the building based on their ownership percentage. For example, if you have 20 shareholders in a co-op and each of them owns five percent of the shares in the corporation, then each of those individual shareholders would get an allocation of five percent of $200,000.
There is more to consider. “Let’s say you did a $100,000 rehabilitation, you will have earned a $20,000 tax credit,” notes Gould. “But you might only be paying $5,000 a year in New York State taxes. The credit is a dollar-for-dollar offset against your personal income taxes. If the gross income of the shareholder is $60,000 or less, then any unused credit would be fully refundable. And if it’s not, then it’s carried forward to the following year.”
A Crucial Difference
In applying for the credit, it is crucial to remember that co-ops and condos are fundamentally different from single-family homes. In condos, the association only owns the common areas and the façades; the unit-owners own their apartments outright. Similarly, a co-op shareholder is responsible for any construction or renovations within the apartment.
Why is that important? Simple: one benefit of the law is that unit-owners and shareholders can apply for a personal tax credit on renovation work they do inside their units – but only if it is done at the same time as the exterior work.
Gould says that this was the situation at Dunolly Gardens: “They were undertaking in their six buildings a series of renovations of exterior masonry, primarily masonry and roof work,” he recalls. He advised them to alert the residents about their opportunity to get tax credits for work they did.
Consequently, after the board completed the application and received approvals for its plan, the shareholders were informed in a letter that essentially told them, “If you’re thinking about doing some interior work, now is the time to do it.”
According to Gould, this is how it works: “If you have 60 shareholders in 60 units, and 20 of them decide they’re going to do interior work, each would have to then file a separate application for the interior work, and it would be coordinated with the fact that the building did an umbrella application for the whole project.”
If you’re still unclear about how to apply, Gould, who walked Dunolly Gardens through the process, explains: “When I prepare a packet, what I say to them is, ‘Take this packet to your tax preparer.’ I lay everything out step by step: the forms, what you do if you file electronically, what you do if you hard file. Again, I go through it step by step by step, because not everybody deals with historic tax credits.”
And how much does Gould charge? It depends. “I’d really rather not say, but my fee is not relative to the credit. My fee is based on the amount of work, not the dollar amount of the credit. I don’t like it when a consultant does that to me, and I don’t do that to my customers. I enjoy my work.”
The homeowner and commercial state credits will be available until December 31, 2019.
For additional information on the New York State Homeowners Credit and whether you qualify, check out the Tax Credit Program page on the New York State Office of Parks, Recreation, and Historic Preservation at http://parks.ny.gov/shpo/tax-credit-programs/. And for additional information on claiming this credit, see Form IT-237, Claim for Historic Homeownership Rehabilitation Credit at http://www.tax.ny.gov/pdf/current_forms/it/it237_fill_in.pdf, and its instructions, Form IT-237-I at http://www.tax.ny.gov/pdf/current_forms/it/it237i.pdf.
Learn all the basics of NYC co-op and condo management, with straight talk from heavy hitters in the field of co-op or condo apartments
Professionals in some of the key fields of co-op and condo board governance and building management answer common questions in their areas of expertise
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