Understanding NYC Real Estate Taxes: How Do I Know When a Tax Benefit Will End?
This week we analyze a property receiving a 421a tax benefit and see how it “rolls back” with the passage of time. Clients often ask, “what would my taxes be if this tax benefit were not in place?” Let’s see how to figure this out.
Consider a condominium apartment at 200 Chambers Street. The apartment is subject to a 421a exemption. Last week we learned that an exemption reduces the assessed valuation of the apartment, which in turn results in a decrease to the tax due. The tax bill shows the following:
Annual Property Tax Detail
Tax class 2 – Residential, More Than 10 Units
Current tax rate: 12.8830% (this is determined by the Mayor and City Council each year with the budget)
Estimated market value (EMV) $644,209 (this is determined annually by the Assessor’s office, and is not the same as actual market value)
Billable assessed value (BAV) $250,631 (for tax class 2, the BAV is determined by multiplying EMV by 45%)
Tax before exemptions and abatements: $250,631 X 12.8830% = $ 32,289
New Mult Dwellings – 421a reduces the BAV by $-44,658 which reduces the annual tax by $-5,753
So the annual tax after the 421a reduction is $26,536
This detail shows that were the 421a not in effect, the current annual taxes for the apartment would be $32,289.
The NYC Department of Finance also has an online section (Property Tax Benefit Information) that discloses how long a current exemption / abatement will remain in effect, and the phase out schedule. By accessing the above apartment, the system shows that the apartment is currently enjoying a 421a “code 5110” benefit, and is currently in year 9 of 10 of the benefit eligibility. The fiscal year of NYC runs from July 1 to June 30. So the current fiscal year is 2016-17, and since it is year 9 this apartment only has one more year of eligibility. Code 5110 benefits phase out over 10 years according to the following schedule: (1) year 1 and 2, 100%, (2) year 3 and 4, 80%, (3) year 5 and 6, 60%, (4) year 7 and 8, 40%, and (5) year 9 and 10, 20%. The actual amount of the annual phase-out is based on the difference between the current BAV and the BAV before the qualifying improvements were made. Essentially, the increase in the BAV attributable to the improvements are exempted, initially at 100%, then declining on the formula above over 10 years.
It’s important to remember when quoting an annual tax rate for a condominium, that the “backing off” of a tax benefit scheduled to take effect at the start of the next fiscal year (July 1) may have a material impact on the actual tax bill a buyer would be subject to. But a little time on the public web resources provided by the City will ensure accurate disclosure, and smoother deals.