Buildings with lots of LLC-owned apartments like the Laureate are likely to suffer the most.

During the past decade, it has become increasingly popular for  home buyers—particularly those with bold-faced names—to shield their identities with LLCs and trusts. By using an LLC, a privacy-minded person can (usually) prevent sleuths from salmon-colored papers like this one from dredging up their purchase from city records and exposing how much they paid and what their new kitchen looks like.

But while such identity cloaking has become all but de rigueur for the celebrity buyer and a matter of preference for other press-averse people, the cost of privacy is poised to go up considerably. That's because the city's co-op and condo tax abatement, which has been enjoyed by nearly all co-op and condo owners at a sizable 17.5 percent since 1996, will no longer be available to those who own their apartments through LLCs or trusts. The change will mean considerably higher taxes for some 7,700 property owners.

This winter, the State Legislature voted to extend the condo and co-op tax abatement—which was initially enacted as a temporary measure to eliminate the discrepancy between the taxes on single family homes and the much higher taxes on homes in multi-unit buildings—through June 30, 2015. But this time around, the Legislature decided to exclude pied-a-terres from the abatement program—a category which the city's Department of Finance says includes all trusts or LLCs.

"There is no provision in the new coop/condo abatement law that allows the beneficial owner of a trust or an LLC to qualify for the benefit," Department of Finance spokesman Owen Stone wrote to The Observer in an email explaining the policy change. "As you know a new law was enacted last month that restricted the eligibility for the coop/condo abatement to only primary owner occupied residences. We have not changed our interpretation of the law- the law has changed. Under the previous law, there was no restriction, and LLCs and Trusts could qualify, under the new law, they do not."

Which has not stopped many in the real estate community from slamming the policy as unfair.

"They're penalizing people who want their privacy or the convenience of owning in a trust," said Eva Talel, a real estate attorney and partner at Strook & Strook & Lavan. "For reasons of privacy, not wanting the world to know what you own is perfectly reasonable at any income level, and to throw the people out of this abatement program seems to be fundamentally unfair."

"I think there must be a misconception somewhere down the line that things like LLCs or trusts are for rich people, but you don't have to be rich or advantaged to put your home in a trust," she added, noting that given the high cost of New York real estate and its rapid appreciation over the last two decades, many New Yorkers count their home as their primary asset. Why should they be punished for trying to lessen their tax burdens in a perfectly legal way?

Even co-op boards, which are notoriously hostile to pied-a-terres (and for demanding reams of personal documentation and disclosure from potential buyers), have started acknowledging the need for trusts in estate planning. More and more of them are now allowing established residents to transfer their apartments into trusts.

"No one would have expected that there would be adverse tax consequences to buying in a trust or an LLC. There aren't otherwise," she said. " I think they made a social engineering decision that these units were owned by more affluent people in more affluent co-ops and were therefore fair game."

(Another real estate professional likened the change, coming in conjunction with larger tax breaks for less valuable co-ops and condos, to "class warfare.")

Ms. Talel also pointed out that the decision to give the tax benefit to only some condo and co-op owners violates the spirit of the original abatement, which was intended, in lieu of more far-reaching tax reform, to equalize the tax burden on single-family homes and those in multi-unit buildings. Townhouse owners are not subject to any restrictions or requirements, primary residence-related or otherwise, to enjoy their lower tax rates. Why should there be a different standard for co-op and condo owners?

Mary Ann Rothman, the executive director of the Council of New York Cooperatives & Condominiums, told The Observer that the Council begged the Department of Finance to reconsider their interpretation, particularly in respect to trusts.

"We told them that 99 percent of the time, there's an agreement between the co-op board and the trust that only the trust-holder will live there," she said, adding that trust-holders can apply for other benefits, like the STAR program.

Ms.Rothman said that building managers are up-in-arms about the changes to the law, which will be phased in over this tax year and the next. It's also a relatively recent shock—while the primary residence requirement has been anticipated for some time, few anticipated that trusts and LLCs would be excluded from that category.

An additional problem is that in some condo buildings more than three-quarters of the units are owned by LLCs—a serious problem for developments that used the tax benefit for maintenance or capital improvement projects. Now, managing agents will need to either raise maintenance fees or figure out how to cover the lost income.

For its part, the Department of Finance says that its hands are tied, but that it is exploring the possibilities for extending the benefit to some trusts.

"We are continuing to review our options regarding eligibility for beneficial owners of trusts," Mr. Stone wrote. "We will listen to the concerns of those who have questions regarding the eligibility for beneficial owners of trusts, and will take them under consideration."

The department is unlikely to hear many complaints from the property owners themselves, though. While LLC owners will no doubt grumble to their friends, their lawyers and their property managers about the new "privacy tax," we don't anticipate many outspoken opponents or resounding outcries from a group that prefers to remain off the record and under the radar.

kvelsey@observer.com

Taxes are going up. (flickr, Joshua Alan Davis)

Keeping a place in the city has never been an easy or cheap proposition for out-of-towners, but it has now become a good deal more costly, after state legislators declined to extend a long-standing tax abatement to pied-à-terre owners.

The State Legislature, when it resumed after the New Year, voted to extend the co-op and condo tax abatement—which has been received by nearly all co-op and condo owners—through June 30, 2015.

However, the new extension applies only to primary residences (granted, one can get the abatement on up to three residences in one building, so the law is not completely insensitive to the needs of the well-to-do)—but it is the first time the benefit has been restricted based on residency since it was enacted in 1996.

The abatement came into being as a temporary measure to help correct imbalances in the tax code which put on a heavy onus on owners of co-ops, condos and rental buildings (single-family homes, townhouses and very small condos are taxed at a much, much lower rate). Through a series of extensions (five), the abatement has managed to survive all these years as the most convenient fix for a very inconvenient problem—the need for comprehensive tax reform.

Indeed, the current code transfers the largest share of the tax burden onto rental buildings. Owners pass the cost onto renters, meaning that the people who bear the brunt of the property tax burden (New York City's largest single source of revenue) are the people who don't own property, according to a study released last spring by NYU's Furman Center.

The last tax abatement extension—which granted a sizable 17.5 percent property tax reduction to almost all homeowners regardless of residency—expired on June 30, 2012. The city, assuming that an abatement bill would pass and be applied retroactively, sent out tax bills that reflected the prior reductions. Now some property owners will have to pay more, although the benefit will be phased out for pied-à-terre owners over the next few years, rather than disappearing completely.

"The transition period is potentially going to be very messy," said Eva Talel, a real estate attorney at Strook & Strook & Lavan. Ms. Talel cautioned that the real headaches of the policy change would be suffered by co-op boards. In the past, given that generally all shareholders qualified for the abatements, boards were able to use the funds for building-wide repairs and capital improvements. Now, with only some of the residents receiving abatements, buildings may lose a source of maintenance income; they will also be left with the question of how to assess taxes and fees.

So will the move discourage pied-à-terre owners, or slow the trophy market madness? Unlikely. While it certainly makes a Manhattan apartment a slightly less lucrative investment, residents of foreign countries were never eligible in the first place—a SSN or EIN was required to take advantage of the abatement. Moreover, keeping a second home in one of the most expensive cities in the world is, in essence, a statement that one has more than enough money to go around.

The good news, and there is some good news, is that co-op and condo owners with properties assessed at or below $60,000 will be getting a bigger tax benefit. Over the next few years, the abatement will increase incrementally from 20 percent to 22.5 percent for residents with properties assessed at $55,001 to $60,000; from 22.5 percent to 25.2 percent for residents with properties assessed between $50,001 and $55,000; and 25 percent to 28.1 percent for residents with properties assessed at $50,000 or less, according to the department of finance.

Under the prior law, the 17.5 percent benefit was given to all applied to buildings with an average assessed value greater than $15,000 per unit; buildings with lesser average values received 25 percent abatements.

Clearly, the move is in part inspired by the city's desire to increase revenue, as the abatements have cost New York hundreds of millions of dollars. It is also, Ms. Talel opined, a reflection of the city's desire to privilege full-time residents over its more fair weather friends.

"There is an increasing desire for benefits to go to people who actually contribute to the city, to make sure rewards go to those who live here," she said, adding that while the extension would come as a relief to many co-op and condo, "we still haven't solved the underlying problem."

kvelsey@observer.com

Best to start saving, just in case. (Tax Credits, flickr)

Time. We really have so little of it. Just a few years ago it seemed like condo and co-op owners had all the time in the world with their beloved tax abatement and now it's expiring.

There are plenty of abatements out there, of course—ones for new construction and capital improvements, senior citizens and veterans, but this one is special. This is the one that gives a generous 17.5 percent property tax reduction to just about all co-op and condo owners. And it's going to die on June 30 if an extension doesn't come along to save it.

The situation has looked bad before, of course. The abatement, first passed in 1996 to help offset the disparity between the tax rates of co-op and condos versus one- to three-family houses, has required several renewals. Still, have things ever been this dire?

"I don't think that it's ever been this down to the wire," said Eva Talel, an attorney at Strook & Strook & Lavan who specializes in real estate law.

It's been a pretty sweet abatement. Owners can get the abatement on up to three apartments in the same building and none of them have to be a primary residence. There's also no cap on the assessed value of a property.

Several bills are pending in the state legislature to extend the abatement, so not all hope is lost, and two of them would extend the current policies through 2016. The third, sponsored by the city, would only extend the current policy for one year before instituting a much less generous one.

The tax abatement costs the city hundreds of millions of dollars in lost revenue. Maybe the city's being greedy here, as the Real Estate Board of New York loves to point out, real estate taxes are the largest single source of revenue for the city. But the cash cow could be producing a lot more milk.

Under the city's new guidelines, the unit receiving the abatement would have to be a primary residence, ruling out investor properties and pied-a-terres. It would also restrict the benefits to the first $100,00 in assessed value, according to Ms. Talel, which makes a pretty huge difference in tax savings for most New York apartments.

"The impact would be felt the most in Manhattan," Ms. Talel said. "The assessed valuation for buildings are getting higher and higher. The combination of that and capping the benefit at $100,00 per unit will have a very serious impact and result in a big tax increase for co-ops and condos."

Ms. Talel said there is confidence in the real estate community that at least one of the bills will pass before the new fiscal year starts July 1. Will the wait cool New Yorkers' recent ardor for buying rather than renting? Probably not. When it comes to real estate in New York, the choices are basically expensive and more expensive.

Still, even an extension does pass, the real problem remains: the tax code is unfair, and while the abatement may address disparities between two categories of property owners, the people who are left to bear the brunt of the city's real estate tax bills don't own property at all—they're renters.

Multi-unit apartment buildings pay the high rate without the benefit of abatements, a cost that is passed on to renters, according to a report NYU's Furman Center for Real Estate and Urban Policy that was released this spring.

The tax code "effectively requires renters to subsidize owners, even though the demographic and socioeconomic characteristics of the two groups suggest that renters already are having a harder time meeting their housing costs," according to the report.

Ok. We admit that rewriting the tax code sounds miserable. But wouldn't it be better than abatements and special programs and incentives and favors to different constituencies? New York is a city of renters, many of whom live in multi-unit buildings, so why keep tax codes that privilege owners of single-family homes?

kvelsey@observer.com