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Council of New York Cooperatives & Condominiums
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Tax Issues

Published: Winter 1998

PROPERTY TAX ABATEMENTS RECEIVED;
LONG-TERM PLAN EXPECTED;
ADDITIONAL EXEMPTIONS ANTICIPATED

 

PROPERTY TAX ABATEMENTS
As detailed in the autumn issue of this Newsletter, property tax abatements for fiscal 1997 and fiscal 1998 were credited against property tax bills for qualifying condominium units and cooperative apartment buildings beginning in July 1997. This marked the culmination of many years of advocacy by the Action Committee for Reasonable Real Estate Taxes, in-depth investigations of the tax structure by two City administrations, "home rule" messages from the City and the City Council, and a strong legislative push in Albany. All of which was followed by monumental data-gathering and number-crunching by the Department of Finance, which required that cooperative and condominium buildings -- or their property managers -- provide the DOF with data on every apartment and its owner.

For condominium owners -- who each receive their own individual property tax bill -- the benefits were immediately evident. In cooperatives, where the abatement is credited against the property tax burden of the building, it took a little longer before qualifying apartment owners received their abatements, but the DOF provided complete information to facilitate this distribution. In September 1997, as soon as precise rate information was available, the DOF sent each cooperative a list of all its qualifying units and the precise dollar amounts to be credited to each one.

Chapter 273 of the Laws of 1996 authorizes the DOF to impose significant fines on cooperative boards if they do not promptly distribute the abatement. This law links the abatement to the apartment unit (even if ownership changed between the filing of the forms and the receipt of the abatement); thus, recent purchasers may experience a small windfall or they many have made their own arrangements to share the reduction with the prior owner. The cooperative itself has no responsibilities in this area.

Most cooperatives have credited the abatement on the maintenance bills of qualifying apartments -- sometimes in one lump sum, more often in installments divided over several months. To comply with the terms of Chapter 273, your cooperative must distribute the entire abatement for fiscal 1998 by the end of June.

SPECIAL CASES
Cooperatives in which all units qualify for the tax abatement have consulted CNYC about incorporating the abatement into building funds, rather than being subjected to the complications of distribution. While this is not possible under the current law, it is a reasonable possibility to consider in the creation of the long-term plan. If implemented, this would enable such a building to create an annual budget that deals directly with the net amount of property taxes for which the cooperative would be responsible. On the other hand, cooperatives that have concerns about the 80/20 rule might question whether the gross (unabated) property tax responsibility can be maintained as the basis for calculating the level of non-member income the cooperative may earn. A request has been made to the IRS to cast light on this issue; it is anticipated that a response will be forthcoming in time for buildings on the cusp of 80/20 to impose shareholder assessments, if necessary, to ensure compliance.

THIRD-YEAR ABATEMENT
The third year of the property tax abatement is for fiscal 1999. It provides a very significant abatement of 25% of the property taxes on buildings where the assessment averages $15,000 per apartment or less and 17.5% for cooperatives with per-unit assessments in excess of $15,000. To qualify, cooperatives and condominiums must file appropriate forms with the Department of Finance by April 1, 1998. The DOF has sent to the designated contact persons (often the managing agent) of buildings that qualified for the prior years' abatements a computer form showing all of the data requested for each unit. To qualify for the third year of the abatement, these buildings must provide any missing descriptive data where there are blanks on the form. These buildings must also provide full information on new owners of any apartments that changed ownership between January 5, 1997, and January 5, 1998. In addition, the DOF requires sales price information on every new sale. Buildings that did not qualify for the first two years of abatements must provide full information on every unit as of January 5, 1998, in order to qualify for the fiscal 1999 abatement. This will be credited on July 1999 tax bills.

LONG-RANGE PLAN
Chapter 273 required that the City develop a long-range plan to continue progress toward tax fairness for homeowners in cooperatives and condominiums. The City administration and the City Council are firmly committed to this project, which has taken far more time to develop than was originally expected. CNYC has received repeated assurances that serious work is progressing on the development of a long-term plan. It is important that all eventualities be carefully checked to ensure that the program will deal equitably with cooperatives and condominiums, that it will be affordable to the City and that it will not adversely impact on other property tax payers. No sector of City government is prepared to allow this important tax abatement program to sunset, and DOF representatives have pointed out that the Mayor's financial plan does make provision for continuing funds for property tax relief for cooperatives and condominiums at roughly the same 25% and 17.5% levels as is mandated for fiscal 1999. CNYC and the Action Committee for Reasonable Real Estate Taxes continue to monitor the progress of the long-term plan and will keep members informed of developments.

MANY QUALIFY FOR TAX EXEMPTIONS
In addition to the property tax abatements, there are several exemption programs currently in place or scheduled to commence shortly that will affect the property tax bills of New York housing cooperatives. They are listed below. Note that in all cases these exemptions accrue to the specific individuals and apply during the specific periods of time that they own their apartments, unlike the property tax abatement which travels with the unit once it qualifies on the January 5th record date of each year.

Because of all the information that is now necessary to file with the DOF about the owners of each apartment, cooperatives and condominiums will help new owners and ease the burden on management if they include appropriate forms as part of their closing procedures.

SCHOOL TAX RELIEF
In 1997, the State legislature passed Governor Pataki's STAR program providing school tax exemptions statewide on homes -- including cooperatives and condominiums -- that are the primary residences of at least one of their owners. An Enhanced STAR program was established to enable senior citizens with family incomes of $60,000 or less to begin to benefit from this program starting in July 1998. All other homeowners who file forms confirming primary residency will receive their exemption on tax bills beginning in July 1999.

ENHANCED STAR BENEFITS ACCELERATED
For fiscal 1998, Governor Pataki has proposed to accelerate the STAR exemption for seniors with family incomes of $60,000 or less. This would bring them an exemption on $50,000 of full value in the determination of school taxes as of July 1998, rather than phasing in the exemption over a four-year period, as was originally planned. This enhancement for seniors will take just a small portion of the budget surplus that New York now enjoys.

Each state locality has developed its own means of collecting data to implement the STAR program. Nowhere is this task as complex as in New York City, where the preponderance of homeownership in cooperatives creates special challenges. Fortunately, the massive database which the Department of Finance has had to amass for the property tax abatement program was very helpful. In December 1997, the DOF sent personalized forms to each person listed as the shareowner of a cooperative unit that qualified for the property tax abatements. If the information these forms contained was correct, the owner simply needed to indicate whether their cooperative unit was their primary residence and then return the form to DOF.

If cooperatives did not participate in the abatement program, the DOF does not have names of individual owners. To capture the STAR data it needs for these buildings, DOF has sent forms to the board or manager, asking that full information on the building and all its shareowners be compiled and forwarded to DOF. For those units that had changed ownership since the January 5, 1997, information date, CNYC joined DOF in trying to collect timely information on the new owners.

The deadline for receipt of this information for seniors qualifying for the enhanced benefit is March 2, 1998. Those eligible for next year have until January 5, 1999, to file, but it is in your interest to get all information to the DOF as soon as possible so that questions that may arise can be resolved. The DOF has agreed to continue to accept STAR forms. As it did for the property tax abatement, DOF plans to contact buildings for verification of the data it has before providing STAR exemptions for all primary residences. This exemption is currently scheduled to begin in July 1999 and to phase in over a three-year period.

Like the property tax abatement described above, the STAR exemptions will be calculated against a cooperative's property tax bill; the DOF will provide a list of the names of qualifying recipients and the amount attributable to each one, and the cooperative will be required to distribute the exemption to the shareholder in a timely manner. In condominiums, where each unit owner receives a separate property tax bill, the STAR exemption will simply be calculated on that bill.

VETERANS' EXEMPTION IN COOPERATIVES
The long-overdue recognition of veterans who are homeowners in housing cooperatives, who deserved benefits parallel to those of their colleagues in private homes, came last spring. As of July 1998, veterans in housing cooperatives who have filed appropriate forms will find their tax responsibilities greatly reduced. Veterans who served in time of war qualify for these benefits (as do their surviving spouses), with additional levels of benefits for those who served in combat or are disabled. Forms were distributed by the Department of Finance and must be filed by the individual veteran by March 15, 1998.

Like the property tax abatement, the veterans' exemptions will be calculated against a cooperative's property tax bill; the DOF will provide a list of the names of qualifying recipients and the amount attributable to each one, and the cooperative will be required to distribute the exemption to the shareholder in a timely manner. Veterans living in condominiums have always been eligible for tax exemptions.

SCHE & SCRIE EXEMPTIONS
Finally, to complete the picture of all tax abatements and exemptions currently available to CNYC members, we add a word about the SCHE and SCRIE programs.

The Senior Citizen Homeowner Exemption program gives tax exemptions to senior citizens with family incomes of $26,900 or less. It was expanded in 1996 to include seniors in housing cooperatives, and has significantly enhanced the quality of life of these seniors. SCHE abatements are credited against the property tax for the cooperative building and must be appropriately distributed to the qualifying individuals. Seniors in condominiums have long qualified for homeowner exemptions, which reduce their individual tax bills. Because SCHE seniors qualify by definition for the enhanced STAR program, the Department of Finance has included them immediately without troubling them for any additional forms.

Buildings that are the homes of rent-regulated, low-income seniors and certain cooperatives have tax exemptions through the Senior Citizen Rent Abatement Program. The Department of Finance now credits SCRIE against the property tax on a cooperative building. As the cooperative distributes the appropriate amount to the owner of the unit where the qualifying senior lives, that owner is made whole for the rent increase that would have been applicable if the senior were not exempted from it. Owners of condominium units receiving the SCRIE credit are similarly made whole for the rent that would otherwise have been due from their rent-regulated tenants.

 
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