Housing for Artists Gains Tax Break James Estrin/The New York Times Exterior trim inside the former P.S. 109 in East Harlem, set to become artist housing. A PLAN to turn an East Harlem elementary school into 90 affordable apartments for artists and their families and space for community arts groups has received a critical federal low-income housing tax credit worth about $24 million. Construction, its developers said, should begin by spring. The project is a collaboration of Artspace, an organization based in Minneapolis that builds affordable living and work space for artists, and El Barrio's Operation Fightback, a community development organization in East Harlem. The groups expect to spend $50 million to convert the school, the former Public School 109 on East 99th Street. A spokeswoman for Artspace, Melodie Bahan, said the next step would be to transfer ownership of the building to the two groups from the city Department of Housing Preservation and Development. Construction can start immediately after that, Ms. Bahan said; it is expected to last two years. A year into construction, the groups will begin taking housing lottery applications from potential residents. Housing will include studio, one-bedroom and two-bedroom apartments, all of which will be below market rate, with rents, at most, between $500 and $1,100 a month, according to Artspace. The building's public areas, including a large hall on the ground floor and a sunken space in the basement that now holds old boilers, will also be available for rental below market rates to community and arts groups, said Shawn McLearen, Artspace's project manager. The five-story neo-Gothic school, which operated from 1905 to 1996, was later scheduled for demolition, until neighborhood activists and preservation groups persuaded the city to save it, and even got it listed on the National Register of Historic Places. At first, hopes were high in the area that the building could reopen as a school, but after the Department of Education ruled out that option, Artspace arrived with an eye toward building its first New York project. On a walk through the building, Mr. McLearen said one of the group's goals was to repurpose without sacrificing original details, and to reincorporate gargoyles and terra cotta ornaments stripped off a decade ago in preparation for demolition. Doing so, he added, is also essential to qualify for historic tax credits that, along with affordable housing credits and arts credits, are at the heart of the project's financing. The new federal subsidy, awarded by the Department of Housing Preservation and Development, is a Low Income Housing Tax Credit, part of a program created by Congress in 1986 to reduce tax liability for developers of affordable rental housing. The developers, in turn, can sell the credits to investors to generate money for construction. For now, many of the original exterior ornaments are laid out inside the building, in dust-blanketed rooms. In addition to tiles and windows from the building's years as a school, educational artifacts remain scattered in place: a metal desk in one corner, or a row of curled paper pennants on an old classroom wall bearing slogans like "Knowledge Is Power" and "Try." Ceilings are crumbling, the result of a drainage system that misdirects rainwater. Mr. McLearen said the need to reverse damage from the elements and restore exterior details had driven projected costs up over the years. An early version of the plan, which Artspace first proposed in 2005, called for 64 units of housing, a completion date of late 2008, and a budget of $22.6 million. "Not only is it historic, which will drive our costs, but it's very historic," he said, standing by a deconstructed terra cotta dormer. Essentially, what you're looking at is a very expensive jigsaw puzzle. The project has its detractors. Gwen Goodwin, the founder of a group called Save P.S. 109, said she still thought a school was a better use for the property. "People in our neighborhood are poor," she said. People in our neighborhood need the school. Ms. Goodwin disputed Artspace's assertion that all the housing would be affordable, asserting that she hadn't founded her group to help turn the building into "high-end condominiums for rich people," she said. This is just a way of gentrifying our neighborhood at an accelerated pace. Gus Rosado, the executive director of El Barrio's Operation Fightback, said artists should not be regarded as separate from the rest of the affordable housing population. "Artists are regular families," he said. Reopening the building, he said, will revitalize a dead spot amid the towers of the city's 1,500-unit public Washington Houses. "It's going to be like a beacon, out into the community, of energy and life," Mr. Rosado said, "as opposed to this vast emptiness and blight that's been here so long."