In New York City, the 421a tax exemption program has gone through recent changes, but remains in effect to help encourage developers to build affordable multifamily housing.
The basics of the 421a tax exemption
The 421a exemption is a property tax exemption given to real estate developers. The purpose is to encourage them to build new multifamily residential properties within NYC. The program focuses specifically on increasing affordable housing options in the most densely populated areas of the city. Any building that adds several new residential units may qualify.
The exemption lasts for 15 to 25 years once the building is complete. It is possible to get a longer exemption period, though these are generally only granted in less populated areas such as the outer boroughs or upper Manhattan.
Benefits of a 421a tax exemption
This type of tax exemption does not apply to every property and not all properties that do qualify will get the same benefits. The benefits can vary based on where the property is located, the property’s zoned use, and certain affordable housing requirements.
For example, if a property has more than 300 residential units and is located within Manhattan, Brooklyn, or Queens, it can be granted a 100% tax exemption during construction – for up to three years – as well as a 100% exemption for as long as 35 years once construction is complete.
Another example would be a person who buys an exempted unit. They may get a 100% exemption for the first few years after purchase. Their taxes could then be increased by 20% every two years until the taxes are at their normal rates.
Affordable New York
The original tax exemption program dates back to 1971, but lapsed in January of 2016. By November of that year, unions, developers, and the New York Governor came up with an agreement, which was then approved by the New York State Legislature. The program got some significant changes and a new name: Affordable New York.
Program requirements to qualify for a 421a tax exemption
A developer who builds a multifamily property on land that is either considered vacant or underutilized may apply for 421a tax exemption. This exemption is designed for newly built, market-rate properties. Significant changes to existing buildings, or building conversions, may qualify for a different program: the J-51 tax exemption and abatement.
In order to a qualify for 421a tax exemption, a developer must build a certain portion of their new development to be affordable. This can range between 25-30% affordable units and there are several ways for developers to make that requirement. For example, a project that is not within the covered area may be able to opt into the program if it meets increased affordability requirements.