Governor Kathy Hochul recently signed legislation authorizing a new tax abatement to promote improvements to affordable housing in New York City. In June 2023, lawmakers in New York State passed the Affordable Housing Rehabilitation Program (the “Program”) to replace the J-51 tax break for multiple dwellings, co-ops and condos that expired on July 1, 2022. Similar to the predecessor J-51 program, the new Program uses tax breaks to incentivize multifamily landlords to renovate their buildings; however, under the new Program, the scope of eligible properties is narrowed to mostly affordable properties. The new tax break is expected to apply to qualifying renovation work completed after June 29, 2022, and before June 30, 2026.

The Program will provide tax abatements for up to 20 years to eligible buildings in the City of New York. For rental buildings, the Program requires that eligible buildings be at least 50% affordable, receive “substantial government assistance,” or be owned and operated by a limited-profit housing company to qualify for an abatement. The New York City Department of Housing Preservation and Development (“HPD”) will determine the threshold income levels for the affordable units. By way of comparison, the expired J-51 program provided tax abatements for up to 34 years and did not contain any affordability requirements.

Under the new Program, the tax abatement is capped at 70% of the certified reasonable cost of the eligible construction over the life of the tax break (the reasonable cost of specific work types is determined by HPD). The new Program will also apply to condominium and co-op buildings in New York City with an assessed valuation of less than $45,000 per unit, which is a slight increase from the predecessor J-51 program.

As a condition to receiving the tax abatement under the Program, each building owner will be required to record a restrictive declaration binding the building to the Program requirements for 15 years, including keeping the building units rent-stabilized for 15 years (even if the term of the abatement is less than 15 years). Landlords must also certify that they have not harassed tenants in the past five years to qualify for the abatement.