A co-op tax abatement assessment allows a co-op to raise additional revenue for ongoing building operations and capital improvements by ‘capturing’ tax abatement or tax exemption proceeds paid to the co-op corporation by the city of New York instead of returning this money to shareholders.
The co-op tax abatement assessment is most commonly used by co-op buildings to pocket the Cooperative and Condominium Tax Abatement benefit.
This abatement is a property tax reduction of 17.5% to 28.1% for eligible co-op and condo owners who use their apartment as a primary residence.
Co-op shareholders who are being assessed generally see two transactions on their monthly co-op maintenance statement: a debit for the amount of the building assessment as well as a credit in the amount of the co-op tax abatement being paid by the city. Because these two entries are a wash, it means that the shareholder does not have to physically pay any money to the co-op despite the fact that an assessment is being levied. Details on any tax abatement and related assessment will also appear in a co-op’s annual financial statement.
The co-op tax abatement assessment is a legal and increasingly common strategy for co-ops to raise revenue without requiring shareholders to contribute cash directly as would be the case for a maintenance increase or for an assessment not directly linked to a tax abatement.
A co-op tax abatement assessment is authorized by the Board of Managers, also known as the co-op board. If a co-op chooses to levy an assessment, shareholders will receive both a credit and a debit on their monthly maintenance statement. The debit is the amount of assessment, which is based proportionally on the number of shares assigned to each unit, and the credit is the prorated share of the tax abatement paid by the New York City Department of Finance.
In most cases, these entries create a wash which means that shareholders are not required to pay any money to the co-op.
The details of a co-op tax abatement assessment will typically appear in the ‘Notes to Financial Statements’ as part of the building’s annual financial documentation which is provided to shareholders.
Here is an example of one such note for a co-op in Greenwich Village:
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Yes. In fact, co-op tax abatement assessments are becoming increasingly common in NYC as co-op buildings look for ways to make ends meet in the face of steadily rising costs. While co-op tax abatement assessments still take money out of the pockets of shareholders, the silver lining is that shareholders don’t actually feel like they’re being assessed since they never physically receive the abatement money in the first place.
This is similar logic to automatic income tax withholding for salaried W-2 workers. While employees are still paying considerable amounts of income tax, the automatic withholding reduces the psychological impact of the tax since the employees do not have to experience the emotional trauma of receiving this additional income only to have to pay it all back to the government.
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