Are Tax-Abated Apartments Worthwhile for NYC Buyers?
- By Diane Tuman July 6, 2015
If you are trying to buy an apartment in New York City, should you seriously consider apartments for sale with a tax abatement?
First of all, what are tax-abated apartments? Sometimes (incorrectly) called tax exempt apartments, these are units that give buyers and owners a huge break on property taxes. It usually starts off with a 100 percent exemption from any property tax increases for the first two years and then taxes are increased by 20 percent of the normal tax rate every two years for the remaining eight years. Some abatements last 10 years, but some can be for 15 or 25 years.
Pros and cons of abatements
With this in mind, should buyers concentrate on finding and buying a tax-abated apartment?
As an agent representing both buyers and sellers, Alison Rogers see both the pros and the cons of tax-abated properties.
“Abated taxes can provide quite a significant savings and many buyers need the savings delivered by the abatement in order to purchase.”
For example, Rogers has a listing in Harlem for a two-bedroom, two-bathroom bath condo for $795K in which the monthly taxes are $20 a month, or about $240 a year and compares it to another listing — an unabated condo studio in Midtown for $750K, in which taxes are $600/month, or about $7,000 a year — quite a difference in savings and affordability.
But, while tax-abated apartments can offer huge monthly savings, it is a double-edge sword for two reasons: condo prices with the tax abatement are usually priced higher and once the abatement expires, the cost of taxes can be prohibitive.
“Abatements simply push up the prices developers can charge, so in that sense they’re not saving purchasers any money; they’re enriching developers,” said Rogers.
In certain neighborhoods with high densities of new developments, buyers can expect to find many condos offering tax abatements. For example, many real estate developers in West Harlem received tax abatements, such as the 421a, when they were proposing and constructing new properties. As a result, a condo buyer in West Harlem can generally expect to see 25-year abatements at competing properties.
From an agent’s perspective, Rogers often focuses on the prices at competing buildings that do not have abatements. She then will adjust the prices on her abated properties because, as she has found “… comparing Building A with an abatement to Building B without an abatement is not an apples-to-apples comparison.”
But the real gotcha for buyers is that when the abatements mature and ultimately expire, the tax increases can be daunting.
“A buyer doesn’t so much see them as ‘icing on the cake,’ but as a poison pill to be avoided, because the seemingly affordable apartment might be unaffordable in five years,” said Rogers.