Online Application Available for MCI Tax Abatement Program

The DOF recently released revised guidance on the implementation of the MCI tax abatement provided for in Section 65 of Chapter 20 of the laws of 2015. The Rent Law of 2015 included changes to the amortization period for the calculation of major capital improvement (MCI) rent increases. The changes, in effect, lowered the monthly rent increases that owners could pass on to their tenants.

Under the old law, tenants were responsible for 1/84 of the major capital improvements done by the owner, which meant that an owner gets paid back within seven years. The increases are permanent but, after seven years, the owner’s costs are recovered. 

Under the new MCI rules, if your building is 35 units and under, you’re paid back in eight years, not seven. And if your building is over 35 units, you’re paid back in nine years. Again, the increases remain permanent, but the increase is lower.

As a way to lessen the pain to owners, lawmakers passed a law that provided for a new tax abatement to owners who received an MCI rent increase order after June 15, 2015. Owners who apply to the DOF will receive a one-time tax abatement equal to 50 percent of the total MCI, multiplied by a formula, depending on the building size.

Abatement amount. The formula for determining the amount of the abatement is: 0.5 x MCI cost x ((increase in months in the amortization schedule--either 12 or 24 months)/total new amortization period in months--96 months or 108 months).

For example, suppose an owner replaces a boiler for a building with fewer than 35 units, which costs the owner $10,000:

• 0.5 x $10,000 x (12 months)/(96 months)
•  $5,000 x 0.125
• $625 is the MCI abatement to the property owner

The application for the MCI abatement is now available online at http://www1.nyc.gov/assets/finance/jump/mci.html.

Existing SCRIE/DRIE/J-51 abatements. SCRIE, DRIE, and J-51 ultimately reduce a property owner’s liability. According to the guidance, the MCI abatement will be applied prior to SCRIE/DRIE credits and J-51 abatements since those benefits are carried over to subsequent years and the intent of the MCI abatement is not to reduce other tax benefits.

Deadline. The DOF will accept all applications submitted by the owner after the receipt of the order from the DHCR, and apply approved applications in the next tax year if the application is received before May 15.

Qualified properties will be eligible for the abatement for one tax year. The abatement or a portion thereof cannot be carried over to the next year if the abatement reduces the tax liability to an amount below $0. In addition, the abatement for a specific MCI increase is not renewable in subsequent years. Also, the abatement won’t reduce or offset any other tax benefit provided, calculated, or approved by the city or state.