Practice Areas
J-51 Real Estate Tax Benefits
GENERAL APPLICABILITYThe J-51 Program provides an incentive in the form of real estate tax exemption(s) and/or abatement(s) to property owners who either rehabilitate existing multiple dwellings or convert other buildings to multiple dwellings. Governmentally assisted rehabilitations of dwellings, multiple dwellings, or vacant buildings are subject to distinct eligibility criteria. In order to receive the benefits under the J-51 program, eligible improvements must be completed by December 31, 2011.
A property's location will determine what J-51 benefits are available, subject to specific limitations and exclusions, as there are several distinct J-51 geographic areas. Properties located in certain areas within Manhattan or with certain assessed valuations prior to commencement of construction are limited so as to be ineligible to receive any abatement or to receive an abatement which would reduce the property's tax liability to below that which would be due based upon the land portion of its assessed valuation. Notice requirements must be satisfied prior to the commencement of construction in order for certain eligible activities to qualify for J-51 benefits.
RECENT DEVELOPMENTS
1. Mixed Content Bill
The alteration, improvement or conversion of any building or structure is eligible for J-51 benefits, which may include exemptions for physical tax assessment increases resulting from an increase in the gross cubic content of such eligible building or structure, provided that:
a) For all tax lots now existing or hereafter created, at least fifty percent (50%) of the floor area of the completed building or structure consists of the pre-existing building or structure that was converted, altered or improved, and
b) For tax lots now existing or hereafter created in the borough of Manhattan between the north side of Chambers Street and the Brooklyn Bridge to the south side of 110th Street, such conversions, alterations or improvements are aided by a grant, loan or subsidy from any federal, state or local agency.
2. Definition of J-51 Rooms
For the purposes of the bedroom count established in the J-51 rules, dwelling units with a combined living/dining/kitchen space in excess of three hundred and twenty-five square feet may be deemed to include both a kitchen and a living room, so that any additional rooms may be considered bedrooms for the purposes of J-51 eligibility requirements.
3. Substantial Rehabilitation
Substantial rehabilitations which include alteration, improvement and conversions are no longer limited to city owned property.
TYPE OF BENEFIT
Tax Exemption
Eligible properties generally will qualify for an exemption from taxation on any increase in assessed valuation which results from qualified improvement. Property in the borough of Manhattan south of or adjacent to the south side of 110th Street with an average assessed valuation per dwelling unit of $38,000.00 or more after completion of construction shall not be eligible for tax exemption (the "38,000.00 Tax Exemption Limitation") subject to specific exceptions. Most properties will be fully or partially exempt from taxation on increases in assessed valuation for 14 years. Improvements qualifying as a moderate rehabilitation of a substantially occupied building and certain conversions, alterations and other improvements will receive a 34-year benefit. Such 14 or 34 year exemptions are phased out gradually during the last four years of each respective exemption. Certain projects when done with substantial governmental assistance or which increase the number of dwelling units that will be available to persons of low and moderate income are not subject to the $38,000.00 Tax Exemption Limitation and, additionally, are eligible for expanded benefits.
Tax Abatements
Eligible properties may also receive an abatement of their annual tax bill equal to 8 1/3 % of the CRC of the improvement for a maximum of 20 years. The majority of eligible properties may utilize 90% of the CRC, while moderate rehabilitation may utilize 100% of the CRC, and certain eligible conversions may utilize 50% of the CRC to abate real estate taxes. Governmentally assisted rehabilitations or conversions, depending upon their location, may receive an annual abatement of 12 1/2 % of the CRC and may utilize 150% of the CRC, or the actual cost of the improvement, whichever is less. Eligible items of work together with allowable costs are detailed in the J-51 regulations.
ELIGIBLE PROJECTS
Subject to limitations, the following classes of projects will qualify for exemption and abatement benefits.
1. SRO Conversions (B to A)
The conversion of a class B multiple dwelling or class A multiple dwelling used in whole or in part for single room occupancy into regular class A multiple dwellings. Such conversion will be eligible only if the conversion is carried out with substantial governmental assistance.
2. Interim Multiple Dwelling (IMD)
The conversion of an IMD (residential loft) pursuant to Article 7-C of the Multiple Dwelling Law is eligible as-of-right, regardless of its location. IMDs are not subject to the $38,000.00 Tax Exemption Limitation for Manhattan projects below 110th Street. There is an abatement limit of 50% of CRC if a project is in Manhattan.
3. As of Right Conversions in Manhattan
The conversion of a loft, warehouse or other nonresidential building to class A multiple dwelling. Such projects are subject to the $38,000.00 Tax Exemption Limitation if in Manhattan below 110th Street. Such projects are also subject to a 50% limitation on the CRC.
4. As of Right Conversions Outside Manhattan
The conversion of a loft, warehouse or other nonresidential building to class A multiple dwelling. Regular exemption and abatement benefits apply.
5. Alterations or Improvements to the Exterior of a Publically Visible Building
Alterations or improvements to the exterior of a landmarked building, provided such alterations or improvements are visible from a public street, and further provided that such alterations or improvements are approved by the Landmarks Preservation Commission. When carried out with substantial government assistance, such projects are not subject to the $38,000.00 Tax Exemption Limitation.
6. Moderate Rehabilitations (Mod-Rehab)
A mod-rehab involves the replacement of either the elevator, heating, plumbing, wiring or windows as well as a CRC of at least $2,500.00 per unit (exclusive of ordinary repairs). It also requires 60% occupancy of a class A multiple dwelling before, during and after construction. Mod-Rehabs are not subject to the $38,000.00 Tax Exemption Limitation and receive 34-year exemption benefits.
7. Alterations or Improvements to an Existing Dwelling
Qualified alterations or improvements to an existing dwelling are set forth in the J-51 Itemized Cost Schedule and must be necessary to eliminate presently existing unhealthy or dangerous conditions or to replace inadequate and obsolete sanitary facilities, including lead-based paint abatement and asbestos abatement to the extent required by law. An assessed valuation per dwelling unit prior to the commencement of construction of $40,000.00 or less is a general criteria for eligibility. Such $40,000.00 limit is not applicable to any multiple dwelling, building or structure owned and operated by a limited-profit housing company established pursuant to article two of the private housing finance law. When carried out with substantial government assistance, such projects are not subject to the $38,000.00 Tax Exemption Limitation.
8. Alterations or Improvement Designated as Energy Conservation Items
Alterations or improvements designated as energy conservation items in the J-51 Itemized Cost Breakdown Schedule. The building being altered or improved must be an existing dwelling. When carried out with substantial government assistance, such projects are not subject to the $38,000.00 Tax Exemption Limitation.
9. Conversions, Alterations or Improvements Commenced On or After September 1, 1987
Alterations or improvements commenced on or after September 1, 1987 constituting a substantial rehabilitation of a class A multiple dwelling or a conversion of a building or structure into a class A multiple dwelling as part of a program to provide housing for low and moderate income households, provided that such alterations or improvements or conversions shall be aided by a grant, loan or subsidy from any federal, state or local agency or instrumentality. Such conversions, alterations and improvements are not subject to the $38,000.00 Tax Exemption Limitation and receive 34-year exemption benefits.
10. Conversion of Non-Profit Institution With Sleeping Accommodations
Conversion of a property classified under the zoning resolution as a non-profit institution with sleeping accommodations into a class A multiple dwelling, provided such conversion is carried out with substantial governmental assistance.
11. Alterations or Improvements to Private Dwellings; Conversions of Private Dwellings Into Class A Multiple Dwellings; Conversions of Multiple Dwellings Into Private Dwellings
Alterations or improvements to any private dwelling, or conversion of any private dwelling to a class A multiple dwelling, or conversion of any multiple dwelling to a private dwelling, provided that in each instance the alterations, improvements or conversion are carried out with substantial governmental assistance.
CONSTRUCTION AND TIMING REQUIREMENTS
In order to be eligible for J-51 benefits, privately financed construction must be completed within 36 months of commencement. For buildings owned as cooperatives or condominiums, construction must be completed within 36 months of the date on which the first closing in a condominium to a bona fide purchaser occurs or, in the case of a cooperative, the date on which the shares allocable to a unit are conveyed to a bona fide purchaser. All applications for privately financed projects must be filed with the J-51 Office no later than 48 months after commencement of construction. Governmentally assisted projects may be eligible for an extended filing deadline of up to 72 months. Incomplete applications must be completed within 24 months of filing.
Buildings converted to class A multiple dwellings and existing dwellings which are substantially rehabilitated must contain bedrooms numbering at least 75% of the number of dwelling units contained in the building. This bedroom requirement is inapplicable where a building's units contain an average floor area of 1,000 square feet or more.
Any building or structure that results from new construction as distinguished from rehabilitation, alterations, improvements or conversion, as evidenced by issuance of a building permit for new construction, is ineligible for J-51 benefits, subject to the provisions of the new mixed content bill discussed previously. In order for a building to be characterized as rehabilitated, altered, improved or converted, it must meet one of the following conditions: a) at least seventy-five percent (75%) of the total area of the original perimeter walls, but in any event at least eighty percent (80%) of the total area of the original non-party perimeter walls, must remain in place as perimeter walls in the building; or b) at least fifty percent (50%) of the original structural floor area of the building must remain in place as structural floor.
RENT REGULATIONS
All units in any building receiving J-51 benefits, except for cooperative or condominium units, must be subject to rent regulation under any local law for the stabilization or control of rents in multiple dwellings or the emergency tenant protection act of nineteen hundred and seventy-four. Units created after January 1, 1974 shall be rent regulated so long as J-51 benefits are in effect. Rents shall continue to be regulated until the unit becomes vacant after termination of benefit.
For units occupied after July 1, 1985, rent regulation shall terminate after expiration of tax benefits if each lease and renewal thereof has included a notice in at least twelve point type informing the tenant that the unit will be subject to decontrol upon the termination of benefits and the date such benefits are schedule to expire.
MITCHELL LAMA BUILDINGS
Mitchell Lama buildings may receive J-51 tax benefits if the application involves one building wide improvement or alteration and the alterations or improvements are not financed through governmental assistance. The J-51 benefits received by Mitchell Lama buildings are distinct from those benefits received by other buildings.
APPLICATION PROCEDURES
All applications are submitted to HPD. Applications are accepted between February 1–March 15, May 1–June 15, August 1–September 15, and November 1–December 15.
Please contact Jay G. Seiden at .(JavaScript must be enabled to view this email address) to discuss your project’s eligibility for J-51 benefits.