Press Room: Tax Release

March 26, 2013

Tax Abatement Phase Out for NYC Condo & Co-Op Owners

Governor Cuomo recently signed legislation that will entirely phase out real property tax abatements over the next two years for condo and co-op owners that do not affirmatively declare their New York City residences to be their primary residence. Additionally, if the taxpayer owns four or more units within the same building, the units will not be eligible for the abatement. If the taxpayer owns three or fewer units, one of those units must be a primary residence for any of those units to be eligible for the abatement.

The former abatement will be reduced by 50% for tax year 2012-2013 (real property tax years run from July 1 through June 30) and will be further reduced to 75% of the former abatement in tax year 2013-2014. Finally, the abatement will be completely eliminated for non-resident owners for 2014-2015, starting on July 1, 2014.

Primary Residency Declarations

Condo and co-op owners will start receiving notices from their buildings requesting that they make a declaration as to whether the residence is their primary residence. These declarations will be the basis for determining if the condo or co-op owner is entitled to the real property tax abatement. To the extent an owner indicates that the condo or co-op is not a primary residence, the owner will receive a notice from the NYC Department of Finance advising them of the abatement phase out.

Use Caution in Making Declarations

Although the loss of the abatement will result in a rise in condo and co-op owners’ real property taxes, we strongly recommend careful consideration be given when making the primary residence declaration. The concern arises in the context of domicile and residency audits of condo and co-op owners post-declaration.

Both New York State and New York City have been aggressively auditing non-resident returns of high net worth individuals. The auditors are frequently challenging taxpayers’ assertions that they are neither domiciled nor resident within the state. To prove residency, auditors frequently look at whether taxpayers take advantage of certain benefits that are only available for domicile/residents (such as the STAR and NYC parking exemptions). To the extent taxpayers claim these types of resident benefits, then auditors will use that as primary evidence of residency. The new residency declarations for condo and co-op owners will certainly be used for this purpose as well.

Again, we urge you to use caution when making your declarations. The dollars saved preserving the real property tax abatement can quickly be outweighed by the additional income taxes that can result from being reclassified from a non-resident to resident.

If you have any questions on the new law, or would like to discuss New York State/City domicile/residency issues, please contact your WTAS advisor.