The “1172l tax code” is a common misreading of Section 11-704.4 of the New York City Administrative Code, which creates a small business tax credit against the city’s Commercial Rent Tax. For qualifying tenants in Manhattan south of 96th Street, the credit can eliminate the CRT bill entirely. You get the full credit when your total income is $5 million or less and your annual base rent before the standard 35% reduction is under $500,000. Above those figures, a partial credit is available on a sliding scale until it phases out completely at $10 million in income or $550,000 in base rent.1NYC Department of Finance. Business Commercial Rent Tax – CRT
Who Qualifies for the Full Credit
Section 11-704.4 took effect June 1, 2018. It uses two tests, and both must be satisfied at the same time:
- Total income of $5 million or less
- Base rent, measured before the 35% statutory reduction, of less than $500,000
Meeting only one test isn’t enough. A tenant with $3 million in total income but $520,000 in base rent falls out of the full-credit zone and into the phase-out range. Tenants whose base rent is under $250,000 are technically outside the credit, but only because they already owe no CRT at all.1NYC Department of Finance. Business Commercial Rent Tax – CRT
How the Credit Phases Out
Crossing a threshold doesn’t erase the credit at once. It shrinks across two ranges:
- Income between $5 million and $10 million: the credit tapers as income climbs.
- Base rent between $500,000 and $550,000: the credit tapers as rent climbs.
At $10 million in income or $550,000 in base rent, the credit is gone and the tenant owes the full CRT at its roughly 3.9% effective rate.1NYC Department of Finance. Business Commercial Rent Tax – CRT
What Counts as Total Income
Total income here is not net profit. It is the figure you already report to the IRS: gross receipts or sales, minus returns and cost of goods sold, plus dividends, interest, rents, royalties, and capital gains. The specific federal lines are line 11 of Form 1120 for corporations, line 6 of Form 1120S for S-corporations, and line 8 of Form 1065 for partnerships. Use the number from the federal tax year immediately preceding the CRT period you are filing for.2New York City Administrative Code. New York City Administrative Code Chapter 7 – Section 11-704.4 Small Business Tax Credit
If your business leases more than one commercial space, the credit is evaluated separately for each premises. A company under the $10 million income ceiling can qualify for the credit at one location and be shut out at another simply because the rent at the second location is higher. There is no blanket portfolio-wide exemption.1NYC Department of Finance. Business Commercial Rent Tax – CRT
The Tax the Credit Applies Against
The Commercial Rent Tax applies only to tenants leasing space for business purposes in Manhattan south of the center line of 96th Street. No other borough is covered, and no part of Manhattan above 96th Street is covered. The CRT tax year runs June 1 through May 31, which trips up businesses expecting a calendar-year or federal fiscal-year cycle.
The statutory rate is 6% of base rent, but every taxpayer gets an automatic 35% reduction in base rent under Section 11-704(h)(2). That brings the effective rate to roughly 3.9%.1NYC Department of Finance. Business Commercial Rent Tax – CRT Base rent itself is the total rent you pay for the space minus any rent you receive from subtenants. If the annualized figure before the 35% reduction is under $250,000, the tax doesn’t apply at all.3NYC Department of Finance. Instructions for Form CR-Q2 Commercial Rent Tax Quarterly Return
The 11-704.4 credit is not the only way out of the CRT. Not-for-profit organizations, tenants using space for theatrical productions, residential subtenants, and tenants renting for 14 days or less during the tax year are separately exempt regardless of income or rent level.1NYC Department of Finance. Business Commercial Rent Tax – CRT
Claiming the Credit on Your Return
The credit is claimed on the CRT return itself. Every commercial tenant in the taxable zone files an annual return (Form CR-A) by June 20 for the June 1 through May 31 year. Tenants subject to the tax also file quarterly returns (Form CR-Q2) on September 20, December 20, and March 20. The one filing exception: you don’t have to file at all if both your annual gross rent paid and any rent received from a subtenant are $200,000 or less.1NYC Department of Finance. Business Commercial Rent Tax – CRT
When you fill out the credit calculation, use the base rent figure before the 35% reduction. On Form CR-A, that is page 2, line 7. It is not the annualized base rent on line 12, which is a different number and will produce the wrong result.1NYC Department of Finance. Business Commercial Rent Tax – CRT
Have your federal Employer Identification Number, your gross rent paid, any subtenant rent received, and your federal total income figure in front of you before you start. Those four items drive both the tax calculation and the credit eligibility test.
If your business closes or you vacate the premises mid-year, the tax becomes due immediately and a final annual return is due within 20 days of ceasing operations.1NYC Department of Finance. Business Commercial Rent Tax – CRT