To gain insight on the latest developments on Long Island, Crain’s Custom turned to a few of Citrin Cooperman's Long Island professionals: Corey D. Bell, Michael A. Sabatini, and Catherine M. Taylor, Esq.
Long Island has long been known for its focus on tourism, with world-class beaches and summer tourist destinations. In fact, tourism remains the backbone of the local economy with over $5.5 billion spent by tourists in 2017 alone, according to research by New York State’s Empire State Development office. The area is also home to several aerospace and defense companies, as well as a strong agriculture and fishing economy.
However, the Long Island economy has been changing over the last several years, with greater diversity in the industries served, in part due to various programs offered by New York State including tax-based incentives, operational growth, and innovation support in order to entice businesses to stay on Long Island and attract new businesses to the region. It now boasts the largest concentration of jobs in the life sciences sector than any other region in New York State, as well as world class colleges and research facilities. Other industries now doing business on Long Island include financial services, software, information technology, food processing, not-for-profits, and other services.
With these changes, and the push to stimulate population growth on Long Island, the need to revitalize aging transportation and infrastructure has become a priority. This migration is creating tremendous opportunity for local shops and restaurants as Long Island becomes an attractive alternative to New York City. For local business owners who may not be aware of the numerous incentives and assistance available to them, your Citrin Cooperman advisors are here to help.
The new federal tax law, which doubles the federal estate and gift tax exemption to 11.2 million for unmarried tax payers and 22.4 million for married taxpayers, has stimulated gifting conversations for many Long Island residents. While some are looking to use this increased gift exemption right away, hedging their bet that whatever the future brings, completed gifts will pass without triggering estate tax, others are taking a more cautious route.
The decision to make lifetime gifts usually involves balancing the needs of the first generation with wealth preservation goals for children and grandchildren. The greater exemption means more can be held back, and many moderately-wealthy individuals are reconsidering whether gifting, rather than holding assets until their death, is really necessary or desirable. The New York State estate tax (which kicks in at $5.6m and has a gift component) needs to factor into any conversation about lifetime gifting and has been included in many taxpayers’ decision to move out of state.
Changes to the gift tax rules are also bringing renewed focus on how business owners are planning for succession, but it needs to remain just one small part of the discussion. There are family dynamics, income tax issues, even business domicile issues to consider. With the world getting smaller, many families are dealing with children living elsewhere, not just different states but different countries, adding international tax considerations into the equation. In short, recent tax reform has a definite impact on Long Island families, regardless of wealth, and needs to be part of any gifting conversation.
The Tax Cuts and Jobs Act of 2017 (TCJA) hit New Yorkers particularly hard, because of our high property taxes and the TCJA’s limitation on deductions for real estate and mortgage interest. While we are still waiting on the IRS for specific guidance, many Long Islanders have already begun putting some strategies into play. One is to purchase the home as an investment or convert existing property into rental property. This option allows many of the expenses to be taken as business expenses and the real property tax and mortgage interest limitations do not apply. Care must be taken to make sure the conversion will stick, including renting the property to an unrelated third party(ies) for market rent, at least part of the time. Any personal use that exceeds 14 days per year may trigger a reduction of permitted deductions for personal use property and, if not accompanied by rental income earned, could cause the conversion to be deemed invalid. To that extent, the IRS could put limitations on the deductions for passive income or hobby losses; therefore, taxpayers must keep meticulous records. If the investment is successful and the rental income is high, the taxpayer may be entitled to take a 20 percent deduction on the income. However, rental property is not eligible for the primary residence capital gains exclusion, so the taxpayer might end up giving back the amount saved in capital gains tax on the sale of the house. Before any plan is implemented, it should be thoroughly addressed with the taxpayers’ tax professional.
With the Tax Cuts and Jobs Act (TCJA)’s reduction of the state and local tax deduction, Long Island taxpayers could significantly benefit from a potential reduction of their property tax assessment. The TCJA caps the state tax deduction at $10,000, meaning that any amount paid in property tax over the $10,000 limit will not be deductible. Those taxpayers paying greater than $10,000 in state and local taxes (including income and real estate taxes), would benefit from any potential reduction in their property taxes stemming from the upcoming assessment, which could help to close the gap between their property tax obligation and the TCJA’s max deduction. Should the property tax reassessment raise a taxpayer’s real estate obligation, the taxpayer will still only be able to deduct the $10,000, losing any benefit of paying an amount over the TCJA’s max deduction.
With high property taxes, many taxpayers on Long Island had been fighting their property tax assessments with the use of tax abatement companies. One benefit of the TCJA is that homeowners with lower taxes will not have to pay the fee to tax abatement companies who have filed tax grievances in the past. Such fees could be as much as 50% of the tax savings. Accordingly, Long Island taxpayers will not only receive the benefit of lower taxes, they will no longer have to share the benefit with these tax abatement companies.
Many Long Island residents have had to pay their federal taxes under the alternative minimum tax, and as such, they have never received a tax benefit or deduction for their state and local taxes. With the TCJA limiting the state and local tax deduction and also reducing the AMT on individuals, many residents will see their tax obligation significantly improve from the tax reform and upcoming property tax reassessment.
There is a tremendous amount of planned growth beginning to take shape on Long Island, which could translate to a positive outlook for the local business community. There are many planned and ongoing revitalization projects working to transform Long Island into a vibrant community for young professionals to live year round and for local businesses to thrive. The projects were developed to counteract the ‘brain dump’ situation which results from young, educated Long Island residents migrating to New York City and other metropolis centers following college graduation.
One of the ways to combat the loss of young professionals in the area is by greatly improving transportation from and to Long Island. There are currently several projects set to improve the Long Island Railroad, including the development of train routes directly to Grand Central Terminal, the expansion of the Main Line through Hicksville, and the double track through Ronkonkoma.
The planned New York Islanders arena, and development of the surrounding Belmont area, is a long-awaited and welcome development for the many Long Islanders anxious to see our Islanders team return home. New communities have sprouted up in the last few years around Farmingdale, Patchogue, and Wyandanch with revitalized downtown areas and significant opportunities for small businesses and bars and restaurants. A massive redevelopment of the area surrounding Ronkonkoma station and Long Island MacArthur Airport is the latest planned project that, when coupled with the Long Island railroad projects, is expected to create a bustling, revitalized downtown area.
All of these projects are significant in the jobs that they will create, along with making Long Island a great year-round place to live, work, and play. With all the potential projects that are expected to benefit Long Island, the challenge is for local government, civic groups, and developers to agree on how to improve Long Island communities and make it a destination for generations to come.
At Citrin Cooperman, we believe that it’s hugely important to give back to our local communities. Every year our firm participates in an annual day of service whereby each of our partners and staff, rather than reporting to the office, spends a full day providing service to a sponsored organization. This year, on June 4th, members of our team on Long Island will be partnering with Habitat for Humanity of Suffolk County, the Ronald McDonald House of Long Island, and Bideawee for a day of service. In addition to providing our time, the firm will make a monetary donation to these organizations. We also conduct annual food drives each fall in connection with Island Harvest and an annual coat drive with New York Cares, in which our partners and staff donate to assist the needy in the Long Island community. In addition to our firm’s charitable initiatives, we actively participate in the philanthropic endeavors of our clients. We have found that not only is it important to play our part as good corporate citizens in our local communities, but that it is extremely gratifying for our partners and staff to give back and contribute to the benefit of our local communities.