Recently, the New York City J-51 tax benefit came to my attention. Having never heard of the residential real estate benefit, I decided to dig deeper. While not its original intended benefit, taking advantage of the J-51 program is an excellent way to offset the sometimes capital intensive renovations that will help make your building more energy efficient. And a more energy efficient building will help you save money in the long run by drastically reducing your utility costs.
The J-51 program began in the 1950’s as a way for owners to help recover the costs associated with the installation of central heating, hot water, and indoor plumbing – all newly required by the city at the time. The program was intended to help owners recover approximately 75% of the costs of the capital improvements through the J-51 incentives.
Today, the J-51 tax benefits are used when making major capital improvements, certain repairs, or converting commercial buildings to be used in the future for residential purposes. Many projects are eligible to receive both a tax exemption as well as an abatement under the program. The J-51 tax exemption temporarily exempts a property from the increase in assessed value which would otherwise occur as a result of the new significant renovation work. Additionally, the J-51 tax abatement can reduce existing taxes by a percentage of the cost of the work performed.
The J-51 program exists in large part to help rent-regulated buildings go through significant renovations without raising rents and preserving the affordability of the units. If a building is receiving J-51 tax benefits, it is not allowed to decontrol the rent during the period the benefits are being received.
While the application and approval process can be time-intensive (think in months/years, not weeks), the benefits are applied retroactively.
Buildings must file their J-51 application within 36 months of commencement of construction. Depending on the type of building, the tax exemption can last from 14 years to 34 years (affordable housing projects).
If you think your building might qualify, you can find out more by contacting our friends at New York City Housing Preservation & Development.