The taxation situation for New York City condominiums and cooperatives over the past 20 years has been, well, taxing. Since 1981, when four classes of property were introduced, things seem to have become more, not less, confusing as time goes by. To begin with, the city failed to place co-ops into the more favorable Class 1, putting them in Class 2 instead where they were assessed based on the value of comparable rental buildings.
To make matters more complex, only a year later, in January 1982, it was decided that co-ops should be assessed compared to rentals with no regulated tenants. Officials said this would give a fairer value to the property. They also explained that the estimated 1,000 affected buildings would generate $10 million to $20 million more in real estate taxes. The total expected amount of real estate taxes that year in New York City was $3.8 billion. (The 2002 figure for total billable assessed value was $158.7 billion.)
A week after this was announced, city officials changed their tune due to the outcry from co-op supporters. Tax increases of 15 percent for each of the next several years were downgraded to about 5 percent. The estimated increase in real estate taxes taken in was also changed, to a much smaller $2 million to $3 million more. In addition, co-ops were to be assessed compared to similar rental buildings nearby, regardless of regulated tenant status. In 1982, the tax rate for all classes was $8.95 per $100 of assessed value.
The best comparisons for yesterday and today start in 1983, when the tax rates were split among the four classes. Class 1, which included one-, two- and three-family residences and some condominiums, had a rate of $8.95 per $100 of assessed value. Class 2, which included all other residential property, had the same rate. In 2002, Class 1 was $11.609, while Class 2 was $10.792.
The big difference occurs in the assessed values. The actual assessed value of Class 1 in 1983 was (in millions of dollars) $6,217.2 while Class 2 was $12,786.8. In 2002, Class 1 actual assessed value (in millions of dollars) was $10,096.6. Class 2 was $33,653.8. As technology improves, so does the breakdown. Breaking Class 2 down further, cooperatives accounted for $9,916.9 and condominiums in this class $3,661.9 (both in millions of dollars). In terms of number of co-ops then and now, The New York Times estimated there were around 1,000 co-ops in 1982 (number affected by the change in how co-ops were assessed). In 2002, there were 4,901 co-ops citywide and 1,842 two- to ten-family co-ops.
There has been a longstanding fight by some representatives of the co-op industry to equalize the amount condos and co-ops pay compared to one-, two-, and three-family homes. Traditionally, says Martin Karp, chairman of the Action Committee for Reasonable Real Estate Taxes, condos and co-ops have paid up to three times more in real estate taxes. The reason: the amendments made in 1981 to the tax law stated that there could not be an increase in taxes to private homes of more than 6 percent a year or 20 percent over a five-year period.
According to attorney Paul Korngold, a partner with Tuchman Katz Schwartz Gelles Korngold & Weiss, cooperatives with from 4 to 10 units have similar protection with caps at 8 percent annually and 30 percent over each five-year period. Larger cooperatives have no such problem. "Clearly," he says, " the value of homes has increased at a rate far greater than 20 percent over each five-year period, which has exacerbated the inequality of taxation between one- to three-family homes and cooperatives."
The fight for tax justice continues to this day, spearheaded by the committee. Abatements have helped many cooperatives but many in the industry want more. (In 2002, 5,471 properties received abatements, totaling $182,306,027.) They want to be treated as residences, not as rentals. The committee's goal is to continue the abatement plan but also, eventually, get a change in the tax law. Will this be good for all co-ops and condos?
Not necessarily, say some experts. Let's say all of these properties were transferred to Class 1, adding up sales in the building. For some high-end properties this could actually mean paying more taxes than they are paying under the current rental-assessed system. Given the wide range of values of units throughout the five boroughs, determining where your property will falls will, again, prove to be a taxing effort.