Recent New York State law allows municipal tax abatement for certain affordable housing projects

by Jonathan Penna on Oct 18, 2011

This article is reprinted with the permission of Nixon Peabody LLP

10/17/2011 – This Affordable Housing Alert addresses the recently enacted New York state law that allows municipalities to adopt local laws providing real property tax exemption to certain affordable housing projects including mixed use projects.

The newly enacted New York Real Property Tax Law (“RPTL”) Section 421-m allows municipalities outside of New York City and Nassau, Rockland, and Westchester Counties to adopt a new tax exemption. The real property tax exemption can be for the construction or substantial rehabilitation of multiple dwellings where at least twenty percent (20%) of the units are occupied by individuals or families whose incomes do not exceed 90% of AMI. If adopted locally, the exemption will apply to general municipal taxes, special ad valorem levies, and school taxes (if the applicable school district also opts to grant the exemption), but not to special assessments.

The exemption begins at 100% of the applicable taxes and phases out over a term of 20 years as follows:

During construction/rehabilitation period (maximum of 3 years)—100% exemption

Beginning the year after construction is completed:

Years 1—12 100% exemption

Years 13—14 80% exemption

Years 15—16 60% exemption

Years 17—18 40% exemption

Years 19—20 20% exemption

However, note that RPTL Section 421-m imposes a minimum tax for each taxable year in an amount equal to the taxes paid on the subject property in the year prior to the beginning of the exemption, and the subject property cannot receive the 421-m exemption if it benefits from any other real property tax exemption.

For the exemption to apply, the project must be located in a benefit area designated by the municipality, and the construction or substantial rehabilitation of the subject property must be financed, at least in part, with grants, loans, or subsidies from a federal, state, or local agency. Also, for mixed use projects, at least 50% of the project’s square footage must be used for residential rental purposes. Construction work must commence after the local law providing for the exemption is enacted and before June 15, 2015.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.

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