The legislature in Albany is back in session, and among the top items on the agenda: whether or how to renew the tax abatement on 364,000 co-ops and condominiums in New York City.
This tax break expired at the end of last session in June, but the city is counting on the Senate and Assembly to renew the abatement before it sends out April tax bills.
How much is the abatement worth?
On average, apartment owners save $1,200 a year due to the break. Some, of course, save much more, and others far less. In turn, the abatement cost the city $444 million last year in uncollected taxes.
Property taxes are the city’s largest single source of income (worth about $18 billion) so any change to the code is considered significant.
The abatement doesn't apply to many new condominiums, which already receive generous tax breaks.
Why is this abatement even considered necessary?
The simple answer is that without the abatement, owners of houses would get better tax treatment than the owners of condos and co-ops.
The principle here is a little different from the way income taxes are calculated, where the government looks at a citizen’s total earnings, allows a few deductions, and then takes a percentage of what's left.
Private houses in New York City are assessed at no more than six percent of their market value, and then they're then taxed on that amount.
The formula to assess condos and co-ops is quite a bit more complicated. The city does an estimate of the rental income value of the dwelling - even though it's usually owner-occupied - and then reduces that figure by 55 percent, and then taxes that final number.
The result is most co-op and condo owners get higher tax bills than the owners of houses. That's why this abatement is necessary.
Why not just rewrite the law, to give apartments equal tax treatment with houses?
That was the idea when this abatement was first created during the Giuliani administration.
Since then, the abatement has been renewed several times, but the law has not been rewritten.
The Bloomberg administration is now proposing modifications to the abatement. The biggest change is that homeowners who don't count the co-op or condo as their primary dwelling would become ineligible for the abatement, thereby saving the city perhaps more than $200 million.
It would not, however, make the tax break more fair.
A recent study by the New York Independent Budget Office found there's a lot of inequality among different co-op and condo owners: Some get the right amount of benefit from the abatement and some receive far too much.
George Sweeting, deputy director of the IBO, said the city is giving out an excessive tax break worth close to $300 million.
“Those dollars are really wasted and our estimate is that 60 percent of the dollars in the program are going to apartment owners who don't really need that abatement to get to an equivalent tax treatment,” Sweeting said.
The IBO's study shows the most benefit, in dollar terms, goes to those living in the Upper East and Upper West Sides. Those neighborhoods also contain many of the city’s most expensive properties.