Understanding the Fundamentals of New York City Real Estate Taxes: What Any Real Estate Expert Needs to Know
NYC real estate taxes are an important component of value, and can be a source of confusion for even the most seasoned broker. Here are some basics that should help clear up the mystery.
Abatements and Exemptions: NYC has various tax programs that operate to reduce the tax burden on certain real estate. Depending on the circumstances, a property may benefit from an abatement, an exemption, or both. Here are the differences.
The Coop / Condo Abatement: Among the most common tax reduction programs in the City, eligible owners can enjoy reductions in their annual real estate taxes, depending on the average assessed value of the units in the building. For buildings with average assessed valuations in excess of $60,001, the benefit amount is 17.5%. But there are restrictions on eligibility, and taxpayers must file an application by February 15, 2017 to obtain an abatement for the 2017-18 tax year (beginning July 1, 2017). To be eligible, the apartment must be the owner’s primary residence, in a class 2 building (this is a coop or condo in a building of 4 or more units). The unit cannot also be benefitting from various of the City’s other exemption and abatement programs, such as 421a. Units owned by LLCs and sponsors are not eligible, and trust ownership is eligible only if occupied by the trust’s primary beneficiary.
Calculating The Annual Real Estate Tax: The first step in the City’s annual tax assessment is to determine the market value of each property in NYC. For tax class 2 (coops and condos in buildings of more than 4 units) the law requires the assessor to value the property as income producing, using a statistical model to find income and expenses of a similar unit that was rented. A formula is then applied to convert this number to the market value. For this reason, market values often appear less than “true” market values were the property to actually sell.
Next, the City calculates the assessed value. For tax class 2, this amount is determined by multiplying the market value by 45%. The City is restricted by law in how much an assessed value can increase year over year, giving protection to taxpayers against “spikes” in assessed value in any given year.
Then reductions are applied based on eligibility. Exemptions directly reduce the assessed value of the property, whereas abatements are direct credits against tax owed.
The actual annual tax is calculated by applying the applicable tax rate to the assessed value, after applying exemptions, and then reducing the tax further by any abatements in place for the property. For the current tax year (2016-17) the rate for class 2 property was 12.892%.
Next week in this column we will analyze a property receiving a 421a tax benefit and see how it “rolls back” with the passage of time, and how to answer the client’s question, “what would my taxes be if this tax benefit were not in place?”