What Is a 421-a Tax Abatement and Which Buildings Still Have It?
What Is a 421-a Tax Abatement and Which Buildings Still Have It?
What Every Buyer & Seller Should Know
Navigating the New York City real estate market can feel like deciphering a complex tax code. One of the most talked-about—and often misunderstood—financial benefits is the 421-a tax abatement. This program, while now expired, continues to impact buyers and sellers across the five boroughs, offering substantial savings on property taxes for certain new developments.
At Yeo Real Estate, our goal is to help you understand these critical details so you can make informed decisions. Here is your comprehensive guide to the 421-a tax abatement.
What is a 421-a Tax Abatement?
A 421-a tax abatement was a property tax exemption program created in 1971 by New York State and administered by New York City. Its primary purpose was to incentivize developers to construct new multi-family residential buildings, particularly in areas with housing shortages. In exchange for building new housing, developers would receive a significant reduction in property taxes for a set number of years.
The program's focus evolved over time to heavily promote the creation of affordable housing. Under the last iteration, developers of eligible buildings were required to set aside a certain percentage of units as affordable housing to qualify for the tax exemption.
How Does a 421-a Tax Abatement Work for a Homeowner?
For buyers of a condo or co-op unit in a building with a 421-a abatement, the benefit is simple: your property taxes are dramatically lower than they would be otherwise. These savings can last anywhere from 10 to 25 years, depending on the specific program a building qualified for.
The tax savings often phase out over time. This means your tax payments will gradually increase on a set schedule until the abatement expires, at which point you will be responsible for the full, unabated property taxes.
Understanding Your Tax Savings
A 421-a abatement works by reducing the "assessed value" of your property for tax purposes. Your annual property tax bill is calculated by multiplying this assessed value by the city's tax rate.
During the Abatement Period: The 421-a reduction is applied, resulting in a much lower taxable value and, consequently, a very low tax bill.
After the Abatement Expires: The 421-a reduction is no longer applied, and you pay taxes on the full assessed value of your property.
This is why you might see a condo listed with a monthly tax bill of only $50, but it’s crucial to understand what the taxes will be after the abatement ends.
FAQ: Key Questions About 421-a
Q: Is the 421-a tax abatement still active?
A: No, the 421-a program officially expired on June 15, 2022. It was not renewed by the state legislature.
Q: So, why are new buildings still being marketed with 421-a abatements?
A: This is a key point for buyers. Buildings that began construction before the program's expiration date are still eligible to receive the benefit once they are completed. This allows new developments to come onto the market with a pre-approved abatement. The deadline for these projects to be completed is generally a few years after the program's expiration, so you will continue to see new buildings with these abatements for some time. The state has proposed a new program, 485-x, to replace 421-a, but as of now, it has not been passed into law.
Q: How can I find out if a building has a 421-a tax abatement and when it expires?
A: There are a few ways:
Check the Offering Plan: The offering plan for a new development will have a detailed section on the tax abatement, including its start and end dates and the phase-out schedule.
Review the Property Tax Bill: You can look up a property's tax bill on the official NYC Department of Finance website. The bill will clearly show if a 421-a exemption is applied and the current assessed value.
Ask a Real Estate Professional: An experienced real estate agent or attorney can help you verify the abatement status and provide an estimate of the full taxes.
Examples of 421-a Tax Abatements in NYC
The duration and phase-out schedule of a 421-a abatement can vary significantly. Here is a simplified example of how a 25-year abatement might work for a new condominium, although specific terms depend on the project's details.
Year | Abatement Percentage | Tax Paid |
1–10 | 100% | 0% of tax increase |
11–12 | 80% | 20% of tax increase |
13–14 | 60% | 40% of tax increase |
15–16 | 40% | 60% of tax increase |
17–18 | 20% | 80% of tax increase |
19–25 | 100% (for common areas/20% of the property value) | Full tax on remaining value |
26+ | 0% | 100% of full taxes |
This table illustrates the concept of a tax phase-out, a crucial element of many 421-a programs. It’s important to note that the specific schedule can differ based on the building and the version of the program it was approved under.
Tips & Takeaways for Buyers & Sellers
Do Your Homework: Never assume the low taxes you see on a listing are permanent. Always verify the abatement status and schedule.
Plan for the Future: When buying a unit with an abatement, budget for the eventual increase in taxes. A good rule of thumb is to calculate what your monthly payment would be if the abatement expired tomorrow, and make sure that number is comfortable for your budget.
Understand the Market: When selling a property with a remaining 421-a abatement, highlight the tax savings as a major selling point. Be prepared to provide clear, documented information on the abatement's remaining duration and phase-out schedule.
Consult the Pros: Whether you're a buyer hoping to capitalize on the savings or a seller looking to highlight this benefit, working with a knowledgeable agent is key.
The 421-a tax abatement is a powerful financial tool that can significantly reduce carrying costs and make new construction more accessible. While the program itself has ended, its legacy continues through the new developments still coming online. For both buyers and sellers, understanding these benefits is essential for navigating the NYC real estate market.
Ready to explore properties with or without a tax abatement? The Yeo Real Estate team has the expertise to help you find the perfect home and navigate all the financial complexities. Contact us today to get started.