NYC landlords get new tax break for child care centers

Program will provide up to $25M annually to incentivize conversion

Eric Adams, Child Care
Eric Adams (Getty)

New York City landlords scored a tax break, but likely not the one they were hoping for.

As multifamily developers await the revamp of 421a or a new tax credit to incentivize office-to-residential conversions, the state recently signed legislation for a tax abatement aimed at increasing the number of childcare facilities in the city. The bill will allow landlords who build childcare space to receive a tax credit of $7 or $15 per square foot annually, depending on location, with a maximum abatement of $225,000. 

The program has a total cap of $25 million. It’s a small initiative, but a needed one.  

Childcare providers in the city are under tremendous financial pressure. This week, the 200-year-old nonprofit Sheltering Arms, which provides services for 17,000 New Yorkers, announced it’s shutting down because of budget cuts and backlogged contract payments. Across the country, nearly 16,000 child care programs closed between March 2019 and December 2021, largely due to financial strain, according to the advocacy group Child Care Aware of America.  

In order to qualify for it, building owners will have to either convert non-childcare space or expand an existing childcare center to increase its capacity, according to YuhTyng Patka, an attorney at Adler & Stachenfeld who specializes in real estate tax incentives.  

Patka said she is hopeful the legislation will incentivize office or retail owners to convert empty space. 

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“I think this would only have positive benefits because more childcare capacity would allow more parents to enter or reenter the workforce,” said Patka. 

The abatement is capped at the cost of creating or expanding a childcare center, or $7 per square foot annually for up to five years. In areas designated as “childcare deserts” — defined as census tracts where there are three or more children under age five for each available childcare slot — that rises to $15 per square foot. 

There’s also a short timeline to qualify for the incentive. Property owners must submit their application by March 15 in order to qualify for the tax year starting July 1. The program will run through 2030. 

The credit will be revoked if a childcare center ceases operations for over 180 days during an abatement period or if the owner provides any misleading information to the city’s Department of Finance. 

New York’s real estate industry is still waiting for some larger tax incentives. Gov. Kathy Hochul recently pitched a new version of the J-51 property tax break, which incentivized renovations to multifamily buildings and commercial-to-resi conversions, after the program expired last year.

Hochul and Mayor Eric Adams have both called for replacing 421a, a tax break for new-construction multifamily projects that set aside a portion of units as affordable but expired last year. But the future of that abatement remains uncertain. Any replacement is likely to face pushback from progressive lawmakers who viewed 421a as a giveaway to developers. 

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