Understanding your property taxes is challenging. There are formulas, transitional values, various discounts, and comparable buildings that all go into the mix of coming up with a property tax amount. This guide is a basic overview of what the taxes are and how the city determines what yours will be.
Each year, the New York City Department of Finance (DOF) assembles the details that make up your property tax bill. The final bill is derived from a formula, and the following steps are used to determine the outcome.
Step 1 Determine Market Value
Your Class 2 property is valued based on its income earning potential. The DOF assigns market values to approximately 1,045,000 properties in New York City each year. The market value is based on your property’s classification and requirements set out in New York State Law.
Step 2 Determine Assessed Value
Market Value x 45 percent (level of assessment) = Assessed Value
(except for buildings with 10 units or fewer where increases on
Assessed Value are capped).
Step 3 Determine Transitional Assessed Value
20 percent phase-in of assessment changes for properties with 11 units or more.
Step 4 Apply Exemptions On File
Assessed Value or Transitional Assessed Value minus exemptions
(reductions to assessment) = Taxable Value.
Step 5 Property Tax Bill
Taxable Value x tax rate – abatements (reductions to the tax) = Property Tax.
Behind the Numbers
Many are confused by how the market value of a building relates to the taxable value of it. It’s complicated because value is influenced by tax class and the state law that sets annual limits on the share of revenue collected from each class.
There are four tax classes in New York City, each of them paying a share of the total property tax collected. Once they are set for the year, class shares are then used to determine the tax rates for each class (see Table 1. Class Share Rates 2017).
•Class 1: One- to three-unit residential properties.
•Class 2: Residential property with more than three units including cooperatives and condominiums.
•Class 3: Utility company equipment and special franchise property.
•Class 4: All other real property, including office buildings, factories, stores, hotels and lofts.
It’s important to understand that all Class 2 properties – rental buildings, condominiums, and cooperatives – are valued as income-producing, not on sales price. The city uses a statistical model to find typical income and expenses for similar properties (in terms of size, location, number of units, and age), and then applies a formula to the income data to arrive at market value. Variations in value depend on whether the building is larger than 10 units.
The key to market value is the income and expenses in larger rental buildings. Most rental building owners are legally required to file an annual Real Property Income and Expense (RPIE) statement. To determine a rental property’s market value, the DOF uses income and expense information filed by owners to estimate current net income (income after expenses). A capitalization rate is then applied to the estimated net income to determine the market value. The capitalization rate is the expected rate of return based on the income generated by the building.
Condos and Co-ops – 11 units or more
State law mandates that condos and co-ops be valued as rental buildings, so they are compared to similar rental buildings. As noted earlier, DOF uses statistical modeling techniques to assign estimated income and expenses based on rental properties that are similar in terms of size, location, number of units, and age. A capitalization rate is then applied to the estimated net income (income after expenses). The comparable properties DOF selected and used to produce market value is online at nyc.gov/finance, where the estimated income, expenses, and capitalization rate can be viewed.
A cooperative receives a market value for the entire building. For condos, the DOF first determines market value for the entire building. Based on the unit-allocation factor that the condo board has provided, the market value is determined for each unit. In newer buildings, the unit allocation factor is often what the sales offering plan had.
Smaller Buildings – 10 units or fewer
Smaller buildings are also valued as income-producing properties, but since most of them are not legally required to file an RPIE statement, the valuation approach is simplified using the Gross Income Multiplier method:
•Estimate the typical income per square foot generated by comparable rental properties.
•Generate a total income for the building by multiplying the income per square foot by the building’s total square footage.
•Multiply the building’s estimated income by a factor to generate the property’s market value. For example, a building with income of $100,000 and subject to a multiplier of 10 would be valued at $1 million.
Assessed values are based on 45 percent of market value. However, for buildings with 10 or fewer units, state law limits how much the assessed value can rise each year to no more than 8 percent from the year before (or 30 percent over five years). Because of this, most assessed values for small properties are lower than the 45 percent assessment percentage.
Transitional Assessed Value
(11 units and more)
Another factor that affects the assessed value for a larger building is a requirement that changes must be phased in over a five-year period (or 20 percent each year). Because a new assessment is made each year, any change is also spread out over a five-year period, so that in any given year there are multiple transitions being applied. This results in an assessed value and a transitional assessed value. The law requires that the lower of the two value numbers be used for your property tax bill. Note that any physical changes to your property are not phased in; instead they are applied in full to your market value and then multiplied by the assessment ratio of 45 percent.
Exemptions – Reducing Your Property Tax
New York offers a number of property tax exemptions to residential property owners. Condo unit-owners receive them directly, while co-op corporations receive the figures for each shareholder. The property tax bill issued in June shows the exemptions and abatements for the coming tax year, which starts on July 1.
It’s important to note the difference between exemptions and abatements. An exemption reduces the assessed value before taxes are calculated, while an abatement reduces taxes after they have already been calculated.
STAR (School Tax Relief)
Available to all owners of houses, co-ops, and condos with annual adjusted gross income of $500,000 or less, as long as at least one owner uses the property as his or her primary residence. No age requirement.
Available to seniors (age 65 or over) with annual incomes of $86,000 or less.
SCHE (Senior Citizen Homeowners Exemption)
Available to seniors (age 65 or over) with annual incomes of less than $37,400.
DHE (Disabled Homeowners Exemption)
Available to homeowners with disabilities and annual incomes of less than $37,400.
Available to veterans of the U.S. military who served during designated periods of conflict, spouses, widows/widowers of eligible veterans, and Gold Star parents (i.e., parents of soldiers killed in combat).
Disabled Crime Victim and
Good Samaritan Exemption
Available to crime victims who suffered a disability as a result of the crime and Good Samaritans who suffered a disability while trying to prevent a crime or assist a victim. Police officers are not eligible. Eligible applicants must modify their homes to accommodate the disability.
Available to members of the clergy whose principal work is ministerial, retired members of the clergy, and widows/widowers of clergy members. The clergy member, not the religious organization, must own the home.
A partial property tax exemption for new construction of residential apartment buildings.
A partial property tax exemption for renovation of residential apartment buildings.
Decreases the amount of property taxes owed for owners of condominium and cooperative units. The building must apply for the entire development.
A partial property tax abatement for renovation of residential apartment buildings.
Provides a property tax abatement to properties that use solar power through solar panels.
A one-time property tax abatement for properties that have green roofs.
The Cooperative and Condominium Property Tax Abatement
Owners of co-op and condo units who meet the requirements for the Cooperative and Condominium Property Tax Abatement can have their property taxes reduced. The amount of the abatement is based on the average assessed value of the residential units in the development (see Table 2. Abatement Percentages).
Requirements to get the abatement are:
• The co-op or condo unit must be the owner’s primary residence.
• The apartment must have been purchased on or before January 5 to qualify for the abatement for the upcoming tax year.
• Co-op or condo owners cannot own more than three residential units in any one development and one of the units must be the owner’s primary residence.
• Property must be classified as a Class 2 property.
• Properties that are part of the Urban Development Action Area Program cannot receive the abatement.
• Co-op or condo owners cannot be receiving any of the following exemptions or abatements:
– J-51 exemption
– 420c, 421a, 421b, or 421g
– Cooperative properties are not eligible for the Clergy Exemption
• The co-op or condo property cannot be:
– a Housing Development Fund Corporation (HDFC);
– a Limited Dividend Housing Company or Redevelopment Company;
– a Mitchell-Lama Building or
– in the Division of Alternative Management Programs (DAMP).
• Units owned by a business (LLC) are not eligible.
• Units held by sponsors or their successors in interest are not eligible.
• Units owned by a trust are eligible only if the unit is the primary residence of the beneficiary of the trust, trustee, or life estate holder.
In December of each year, the DOF mails the tax benefit reports to boards and managing agents outlining each unit’s tax savings for personal exemptions and the cooperative and condominium property tax abatement. Beginning in December 2016, the DOF also mailed the tax benefit reports to condominium boards and their managing agents. Managing agents are legally required to renew the cooperative and condominium abatement for their properties every year.
The abatement must be renewed each year even if their are no changes to the tax benefit report. Change forms satisfy the annual renewal requirement. Completed forms must be postmarked by the March 10, 2017, deadline. A second form, for fiscal year 2017/2018 is due by the end of March, and it reflects ownership on January 5, 2017. To continue to be eligible for the abatement program, the appropriate box must be checked when the form is submitted.
Notifications and Bill Payment
Notice of Property Value
By law, all properties are valued according to the property’s physical condition as of January 5. Later in January, the city mails property owners a Notice of Property Value (NOPV). The NOPV has important detailed information about your property, including the estimate of your property’s market and assessed values. It is informational only and will be used for the tax year beginning on July 1. It also lists any exemptions you have in the current tax year and may list some of your exemptions for the next tax year, depending on when you applied for them.
In a condo, each unit-owner will receive a NOPV, and in a co-op, the board will receive it for the building. All NOPVs can be viewed online at nyc.gov/finance.
Condo unit-owners pay their property tax directly to the city, while a co-op corporation is responsible for payment. Depending on how much is owed, each will follow a set payment schedule.
• Quarterly Payments: All properties with an assessed value of $250,000 or less must make tax payments four times a year. Quarterly bills are usually sent one month before taxes are due; due dates are July 1, October 1, January 1 and April 1.
• Semi-Annual Payments: All properties with an assessed value of more than $250,000 must make tax payments twice a year. Semi-annual property tax bills are usually sent one month before taxes are due on July 1 and January 1.
Excerpted from the New York City Property Tax Guide for Class 2 Properties published by the New
York City Department of Finance.
To download the full guide, go to http://bit.ly/Class2taxes
Deciphering Your Property Tax Bill
Here is an example of a Property Tax Bill for a Class 2 co-op with more than 10 units, along with an explanation for each of the values listed. In condos, each unit-owner will get this bill. In co-ops, the board will get the property’s bill and will allocate property taxes to each unit on the basis of their share allocations.
● Market Value
DOF values your property based on its income producing potential.
● Assessed Value
Your assessed value is taken from lower number: your market value times 45 percent or the transitional amount.
The value of exemptions is deducted from the assessed value.
● Taxable Value
The taxable value is the assessed value minus exemptions.
● Tax Rate
The city’s approved tax rate for Class 2 properties is applied to the taxable value in order to calculate your property tax. The property tax rate for the tax year (July 1 – June 30) is not final until November. The July and October bills have the tax rate from the prior year; the January bill shows the new tax rate made final in November.
● Annual Property Tax
If there are abatements, they are subtracted from the tax amount to determine the final property tax bill.
The Property Tax Year
January: DOF mails your Notice of Property Value.
February: Deadline to apply for co-op/condo abatement.
March 1: Deadline to dispute your property’s value with the New York City Tax Commission.
March 15: Deadline to apply for personal exemptions.
May: DOF releases the final assessment roll and generates property tax bills for the next tax year that begins on July 1.
June: You receive your first property tax bill for the tax year that begins the next month, July.
July: A new tax year starts; you are taxed at the previous year’s tax rate.
November: The City Council approves the tax rates and the mayor signs off on them. They are usually finalized in November when class shares are determined. Because half the tax year is almost over by November, taxes for the first part of the year are re-calculated at the new rate.