A tax break for residential development is likely to pass through Albany, as lawmakers have reached a deal that puts an end to weeks of heated negotiations surrounding the measure. Facing pressure from the city and the potential of a veto by Governor Spitzer, lawmakers said yesterday they agreed to add options for middle-income housing and scale back an exception that could have cost the city $300 million.

The state Legislature passed a bill in June that extended and altered the well-used tax incentive, known as 421-a, greatly expanding provisions for low-income housing in large portions of the city. Should the bill become law, developers in parts of all five boroughs will be required to reserve 20% of their units as “affordable” in order to be eligible for the tax break.

After its passage, the bill drew fire from the Bloomberg administration, which said restrictions in the legislation meant the tax break would not apply to thousands of units of middle-income housing. The city also disapproved of an exception carved out for Brooklyn’s $4 billion Atlantic Yards project, which Mayor Bloomberg said could cost the city $300 million in tax revenue.

Since then, the chief architect of the bill, Assemblyman Vito Lopez, the Bloomberg administration, and members of the real estate industry have been attempting to craft a deal that assuages some of the city’s concerns and maintaining support of the development community.

The exception for Atlantic Yards was reduced in its scope, but not removed, with the added benefit to the development estimated at $150 million, according to a city official. The entire complex, regardless of whether the buildings have affordable units, would qualify for the tax break, though the market-rate buildings would receive the incentive for 10 years less, the city official said. The developer, Forest City Ratner, would be required to build its low- and middle-income units simultaneously with other units in order to receive the tax break.

The Bloomberg administration had been pushing to extend the tax break to developments with city-subsidized middle-income housing, claiming about 10,000 units planned citywide could be jeopardized without it. Mr. Lopez, who wanted the incentive to be confined to city-subsidized buildings for low-income residents, reached a compromise with the city that extended the tax break to middle income projects up to a certain income level.

In a statement, Mr. Bloomberg called the agreement “a positive result for affordable housing in New York City.”

“There were compromises there, but this bill will still go far to help prevent gentrification,” Mr. Lopez said.

While claiming some aspects would likely restrain development, the real estate industry, for the most part, supported the bill passed by the Legislature in June. Support from housing advocates was muted by resentment over the Atlantic Yards exception.

Opponents of the project said Forest City Ratner should have to abide by the same rules as every other developer in the city.

“It shouldn’t be in there, and if it is, the governor shouldn’t pass it,” a spokesman for the anti-Atlantic Yards group Develop Don’t Destroy Brooklyn, Daniel Goldstein, said.