The initial report by the commission studying property tax reform in New York City is barely a week old – and actual changes are probably years away – but many brokers believe the sky is already falling.
One of the commission’s more earth-shaking proposals is to tax all co-ops, all condos, and rental buildings with fewer than 10 units the same as one- to three-family homes. All properties in this class would be assessed on the sales price and taxed on 100 percent of the market value. Under the current arcane system, co-ops and condos are grouped together with large rental buildings and are assessed based on the potential gross annual income they would receive if rented. For some co-ops and condos, particularly those at the high end, the proposed change would result in radically higher property tax bills.
"This proposed tax system will drive many out, not least because it’s becoming increasingly expensive to live here," Rowena DasGupta, an agent at Warburg Realty, tells Forbes.
Christopher Totaro of Warburg adds that many property owners, particularly in the middle class, are already reeling under the cap on state and local tax deductions under the Trump tax “cuts” of 2017. “When you couple that with an income-tax rate of 32 percent, 9 percent sales tax, rising energy costs – 4 percent in 2020 – insurance rate increases, building repair costs for newly-implemented code compliance laws and building maintenance increases every year,” Totaro says, “it’s dangerously close to the tipping point of an exodus of owners and a reduction in sales due to sales being taxed immediately at the proposed rates. I believe people will reconsider buying. Also, rental buildings would see higher taxes and rents will increase.”
Mark Hakim, a real estate attorney with Schwartz Sladkus Reich Greenberg Atlas, notes that, under the commission’s proposal, "tax bills for some will decrease but will, for others, increase drastically, making their homes and apartments unaffordable and possibly even unsaleable. I truly understand the need for fairness, but a knee-jerk, feel-good legislation, without ample consideration of the real estate markets and economy in general, would be foolish and shortsighted. We already have many people investing and moving in droves to more affordable states. There’s no need to further push New York into a downward spiral."
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