Everything You Should Know About J51 Tax Abatement

By: ROS Team

Share the Post:

When it comes to purchasing an apartment, one of the tax reductions that are most commonly misunderstood is known as the J-51 tax abatement. It is uncommon to discover condos and co-op units currently up for sale. Still, the very intricacy of the transaction tends to make it difficult for selling agents to convey precisely what the tax benefit entails.

What is the meaning of J-51 Tax Abatement?

The J-51 tax abatement is a property tax incentive offered to sure building owners who are eligible for the program, renovate their buildings, and convert industrial and commercial buildings into residential use.

The J-51 tax abatement rent stabilization consists of a tax exemption that maintains the assessed value before construction begins and a tax abatement that lowers property taxes on a dollar-for-dollar basis. The assessed value is held at the station before the building starts.

Image Source: alex-fischer-duesseldorf.de

History of J-51 Tax Abatements

Many ancient law tenements had no modern indoor plumbing when the New York State Legislature enacted Section 5-c of the New York Tax Law in 1946. Which granted tax incentives for owners who upgraded and made habitable unoccupied rooms in old law tenements.

Tax law amendments in 1955, which included Section 5-h, helped New York City establish Section J-41-2.24 of the city’s Administrative Code that provided tax incentives for the rehabilitation of existing and deteriorating structures. Even for those not assessed as inferior quality, upgrades to existing multi-family properties were included in J41. That scheme was renamed in 1963 to the tax abatement known today as J-51.

In the middle of the 1970s, the J-51 program was significantly enlarged to meet NYC’s growing economic and housing issues. Industrial and commercial buildings in New York City went unoccupied due to the city’s dramatic decline in population beginning in the early 1970s. As a result, in 1976, the J-51 program in New York was expanded to include converting non-residential structures into multi-family residences.

Image Source: cdn.vietnammoi.vn

J-51 Tax Abatement Benefits

The J-51 tax exemption first benefited landlords, and owners of properties rented out to tenants. The strategy was successful in its mission to convince property owners to restore older housing complexes. As seen by the meteoric rise in the number of condominium and cooperative conversions in New York City throughout the 1970s.

How Long Does a J-51 Tax Abatement Last?

Properties that meet the requirements are eligible for either a tax exemption lasting 34 years or one lasting 14 years. Affordable housing developments are typically exempt for 34 years, whereas other properties usually qualify for the 14-year exemption. Both exemptions can reduce the real estate tax by up to 13% over 20 years. Depending on how healthy the economy is.

Privately-financed properties in Manhattan, especially those south of 110th Street, tend only to receive limited tax assistance. So keep this in mind if you’re considering buying property.

Affordable housing
Image Source: blanchartlaw.com

How Can You Determine When the Tax Abatement Will Eventually Expire?

It is possible to use up all of the J-51 Lifetime Abatement amount in 20 years before the tax reduction under the J-51 scheme ends. A component of the J-51 program’s real estate tax exemption expires after either 14 or 34 years. Depending on how much work has been done on the property. Affordable housing developments usually receive a 34-year exemption, while other projects receive a 14-year exemption. These are phase-out periods in which assessed values gradually rise from their pre-construction value to a higher value than after construction.

The Drawback of J-51 Abatement

A building’s assessed value must have gone up due to the rehabilitation work to qualify for an exemption. Abatements are more prevalent than exemptions. When it comes to property values, only extensive upgrades will significantly impact. That is why J-51 abatements are available in most cases, with no exclusions. Exemptions and abatements can be applied to the same structure in most situations.

Final Thoughts

It’s important to remember that the J-51 tax abatement isn’t permanent; it has a set expiration date. In other words, the J-51 program comes to an end whenever the total amount of the J-51 lifetime abatement is exhausted or the maximum 20-year time limit ends. Whether you qualify for the 34-year or the 14-year exemption. Remember that the final four years function as phase-out years building up to the exemption’s end.

Related Article:

NYC 421a Tax Abatement
Schedule K-1 Tax Form
Tax Planning In Retirement