421a Tax Abatement NYC Guide

Apr 24th 2024
In NYC, 421a tax abatements were introduced in 1971 and were implemented to encourage developers to develop unused and underutilized land by offering them reduced property taxes for a set amount of time, typically between 10 to 25 years. Usually, the tax break goes with the property, as long as the project continues to qualify. So if you're buying a co-op or condo in New York City, you may have come across listings that include what is called a 421a tax abatement.

hash-markDid the 421a Program Expire?

Yes, the 421a tax abatement program expired in January 2023. Although developers can no longer take advantage of the 421a tax abatement program for new projects, they can use it for projects that began before December 22, 2022. Many in the NYC real estate industry are also hopeful that the program is brought back in the future, perhaps in 2025 or 2026. 

While the 421a program has expired, there are still buildings and units that have a 421a tax abatement in place. These units will be subject to lower property taxes as long as the property qualifies. Once their 421a tax abatement expires, the property taxes will increase as the units will become fully taxable. 

hash-markHow Did 421a Tax Abatements Work Under the Affordable Housing NY Program?

In April 2017, the New York State legislature enacted a new version of 421a tax law, which is now known as the “Affordable Housing NY Program.” Overall, the new bill primarily focuses on providing tax incentives to developers who agree to offer both affordable housing units and pay higher wages for construction workers.

hash-markWhat Properties Are Eligible for 421a Abatements?

“Rental projects,” which is defined as tax lots containing one or more multiple dwellings in which all dwelling units are operated as rental housing

“Homeownership Project”- a multiple dwelling or portion thereof operated as “condominium or cooperative housing.”

  • containing six or more dwelling units;
  • created through new construction or eligible conversion;
  • excavation/construction of initial footings and foundations lawfully commenced in good faith on or after 1/01/2016 and on or before 12/22/2022; and
  • The first TCO or PCO is issued covering “all residential areas” (the “Completion Date”) is before 6/15/2026.

hash-mark421a Tax Abatement Enhanced Affordability Areas

The statute establishes three “enhanced affordability areas” which are eligible for a 35-year benefit:

  1. The Manhattan enhanced affordability area is the area located entirely south of 96th Street.
  2. The Brooklyn enhanced affordability area is the area one mile in from the bulkhead in Community Boards 1 and 2.
  3. The Queens enhanced affordability area is the area one mile in from the bulkhead in Community Boards 1 and 2.

hash-mark421a Tax Abatement Enhanced 35-year Benefit

Under Affordable New York, rental buildings with 300 or more apartments in the Enhanced Affordability area that reserve at least 20 percent of units as affordable for 40 years will be eligible for tax incentives for 35 years, which is up from the previous 25-year tax break.

Benefits are available primarily for rental projects. The benefit includes 100% real estate tax exemption for up to three years during the construction period and an additional 35 years after construction. Overall, for the first 25 years of the tax abatement, projects will receive a 100% tax exemption. During the remaining ten years, the abatement will be equal to the percentage of affordable units in the project. “Affordability Percentage” is defined as the number of “Affordable Housing Units” divided by the total number of apartments in the building (e.g., 40 Affordable Units/ 100 total units = 40%.

Once created, all Affordable Units become rent-stabilized apartments, and the tenants who occupy the apartment when the program expires can remain rent-stabilized tenants for the duration of their occupancy.

Every rental project with less than 300 units or outside of the Enhanced Affordability Area are required to meet one of the following three affordable housing options to be eligible for the 421a tax exemption:

Option #1

25% of the units must be affordable, with at least 10% affordable at up to 40% of the area median income (AMI),10% at up to 60% of the AMI and 5% at up to 130% of the AMI; and

Developers cannot receive any government subsidies other than tax-exempt bond proceeds and 4% tax credits.

Option #2

30% of the units must be affordable, with at least 10% affordable at up to 70% of the AMI and 20% at up to 130% of the AMI.

Option #3

At least 30% of the units must be affordable at up to 130% of the AMI;

Developers cannot receive any government subsidies; and

The project cannot be located south of 96th Street in Manhattan or any other area established by local law.

hash-markWhat are the Requirements for Home Ownership Eligibility?

Under the Affordable Housing New York Program, specific homeownership projects are eligible for a 100% real estate tax exemption for up to three years during the construction period, with an additional 20-year exemption. After that, for the first 14 years, projects are eligible for a 100% exemption. Beyond the 14 years, the projects will be eligible for a 25% exemption for the remaining six years.

  • Projects must be located within the four boroughs outside of Manhattan, including Brooklyn, Bronx, Queens, and Staten Island;
  • Homeownership projects cannot contain more than 35 residential dwelling units;
  • Condominium and cooperative homeowners must use their home as their primary residence for five years after the date of purchase; and
  • the condominium or cooperative project average assessed value cannot $65,000 per dwelling unit.

hash-markWhat are the Higher Wage Concessions?

Construction workers on projects in Manhattan must receive an average rate of $60 per hour, while workers in Brooklyn and Queens must earn at least $45 per hour. For an applicant receiving an enhanced thirty-five-year benefit, an independent licensed accountant in good standing must be hired by the owner to monitor compliance with the wage requirements as provided by the law. The hourly wages will automatically increase by law every three years at a rate of 3%.

The wage requirement is mandatory for a large-scale project located in an Enhanced Affordability Area. However, a developer can opt-out of this requirement by either setting making at least 50% of the units in the building as affordable up to 120% of the area median income, or by entering into a Project Labor Agreement with the workers.

What Are the Results of the 421a Tax Abatement?

Over the years, this evolving tax exemption has proven to be a huge success, helping give birth to thousands of Manhattan condominium projects as well as creating thousands of affordable housing units. This has made the 421a tax abatement program a resounding success. 

421a Tax Abatement Bottom Line

Although the 421 tax exemption was originally very successful, encouraging property developers to build new residential real estate in NYC, the program has now lapsed. At the end of 2022, the 421a tax abatement program expired as progressives in the NY State legislature let it lapse without renewing it. That means that no new developments can have a 421a tax abatement. However, you may still see apartments that were develoepd before December 2022, with an active 421a tax abatement.