Many condominiums and cooperatives in New York, particularly cooperative housing corporations, tend to pay the capital base tax on their tax return. This tax calculation typically results in a higher tax liability due to the assessed market value of the building. With ongoing New York tax law changes, many buildings will begin to reap the benefits of the capital base tax phase-out starting in 2020.
As part of the 2014-2015 New York State budget, the New York State Department of Finance and Taxation approved significant tax reforms designed to be more favorable to New York based taxpayers, including cooperative housing corporations and condominiums.
Specifically, the capital base tax for cooperative housing corporations and other taxpayers (including condominiums) was gradually reduced for tax years 2015 through 2020 and will be eliminated in the year 2021 and thereafter. Because cooperative housing corporations were already subject to a special reduced rate, 2020 will be the first year that they will be able to benefit from the phaseout of the capital base tax with many seeing significant tax savings for 2020. The rate reductions for tax years 2019 and thereafter will be implemented as follows:
Type of Business
|For tax years beginning in:|
|2019||2020||2021 & thereafter|
|Remaining Taxpayers (including condominiums)||
The phase-out of the capital base tax will be particularly advantageous to buildings organized as cooperative housing corporations as they often pay significant tax under this calculation. As the phase-out of the capital base tax continues, more taxpayers will pay tax under the fixed dollar minimum tax calculation, which is based on New York State gross receipts and tends to create a lower tax liability for such entities. Currently, the fixed dollar minimum tax is calculated as follows for eligible cooperative housing corporations and condominiums:
|For corporations with New York receipts of:||Fixed Dollar Minimum Tax|
|$100,000 or less||$25|
|$100,000 – $250,000||$75|
|$250,000 – $500,000||$175|
|$500,000 – $1,000,000||$500|
|$1,000,000 – $5,000,000||$1,500|
|$5,000,000 – $25,000,000||$3,500|
|Exceeding $25,000,000||$5,000 – $200,000|
An example of how the capital base tax phase-out may impact your building:
ABC Cooperative, Inc. has an average capital base of $115,000,000 and annual gross receipts of $11,000,000. Under the capital base tax rate of .04% in 2019, the building would have a tax liability of $46,000. However, under the new capital base tax rate of .025% in 2020, this tax liability would decrease to $28,750. Ultimately, when the capital base tax rate is completely phased out, the building could anticipate paying tax under the fixed dollar minimum tax calculation, resulting in a tax liability of only $3,500.
These changes will be important in establishing estimated New York State tax liabilities for tax years 2020 and thereafter. Please feel free to contact your WG advisor for more information on how these changes will impact your cooperative housing corporation or condominium.