For New Yorkers, understanding NYC property taxes is crucial. But the city’s nuanced approach, driven by factors such as a property’s type, location, and value, creates complex situations that can require an in-depth understanding of NYC tax laws to fully grasp.
For example, two ostensibly comparable properties in Manhattan may be taxed at different rates due to NYC property taxes. The difference stems from the fact that the City Department of Finance uses different valuation methods to determine the property’s market value, and also applies distinct tax rules for each type of building — one- or three-family homes, condos, cooperative apartments, and manufactured homes. These differences in NYC property taxes are also amplified by state tax law, which provides exemptions and abatements for certain types of buildings or classes of property owners.
In addition, the City’s cap and phase-in provisions are designed to mitigate NYC property tax increases, but critics argue they result in unequal assessments that disproportionately hurt many communities, particularly those with large numbers of low-income residents and people of color. This explains why a broad coalition of community groups and legislators, including Democrats and Republicans, supports sweeping reform of the city’s property tax system.
The city’s complexities in NYC property taxes are the result of a patchwork of older legislation and a series of court rulings that reworked the old system in the mid-1970s. While the resulting system has worked well overall, its Byzantine structure, outdated rules, and complex processes have produced inequities that hurt many communities.
Adding to the complexity, the City’s valuation process for NYC property taxes is highly secretive. A group of community advocates has sued to gain access to the city’s data and information, and its report to the Council in 2022 will highlight some of the key findings and recommendations for change.
While the City is taking steps to make the NYC property tax system fairer, many residents and business operators are struggling with its current structure. This includes those whose properties have been assessed at far below their market value. And it’s especially challenging for those who are renting. In these situations, the higher NYC property tax burdens can be passed along by landlords to tenants in the form of increased rent, which exacerbates the financial challenges of low-income households.
The City needs to do more to reduce property tax inequities in NYC and address affordability challenges. This should include addressing the unequal assessments and leveraging a portion of the city’s land-use tax revenue to offset property tax increases for homeowners. For example, a pied-a-terre tax could help stabilize the property tax burden for owners of luxury residential condos that are often overtaxed in NYC. But any changes to the City’s property tax must be carefully vetted to ensure they do not further increase inequities or harm vulnerable populations. The next article in the series will examine the root causes of these inequities in NYC property taxes and provide solutions for the future.
Property taxes are a crucial part of New York City’s finances, accounting for 30% of the city’s $109 billion budget, with NYC property taxes levied on virtually all real estate in the city, including one-, two-, and three-family houses, apartment buildings, offices, factories, and warehouses. It is collected by the city’s finance department from owners of these properties, and tenants pay a portion of their owners’ property taxes through rent. In addition, some types of real estate, such as churches and nonprofits offering educational or religious services, are exempt from property tax.
Property values have soared in recent years, but the growth has not been equally distributed across the city, particularly in the realm of NYC property taxes. The disparity reflects government policies that shield some types of property owners from rapid increases in their tax bills due to appreciation in their properties’ value. This inequality makes residential and commercial real estate more expensive in the city and undercuts its economic competitiveness.
New York City has a complicated system of property taxes, which includes four classes of properties and several exemptions. Each year the City Council sets a total levy for the City’s property tax, and each property class pays a share of that levy based on its market value. The formulas used to calculate the class shares are codified in law, with minimal local discretion, and intended to keep class share levels relatively stable over time for NYC property taxes.
As a result, changes in the NYC property tax rate occur rarely. Since the 1990s, the overall property tax rate has remained steady at 18.5 percent, while market value increases have driven up property tax bills.
This has created wide disparities in the city’s property tax rates, as illustrated in Figure 1. The large gaps are the result of the limits on annual assessment increases embedded in the City’s property tax laws and exemption programs, affecting the distribution of NYC property taxes.
These disparities affect a broad spectrum of New Yorkers and are damaging the city’s economy. They penalize businesses that operate in slower-appreciating neighborhoods, homeowners in these neighborhoods, and minority property owners.
The City’s property tax laws should be reviewed and reformed to better align the tax burden with property values, increase transparency of the NYC property tax system, and ensure that the city’s property tax policies are achieving their intended goals.
Property taxes are a significant source of revenue for the City’s general fund and for public schools, parks, and other amenities. They also support the City’s affordable housing and commercial redevelopment programs. In New York, property taxes, especially NYC property taxes, are higher than in most states.
The wide gap in property tax rates among NYC’s different kinds of properties is particularly damaging because it undermines the city’s ability to attract and retain businesses, erodes the quality of life for its residents, and stalls the City’s long-term economic growth. The City must address these issues to maintain its global position as a center for business and quality of life. This requires reducing the current property tax differentials, reexamining existing exemptions and abatements to make sure they are meeting their stated goals, and ensuring that the City’s real estate tax is aligned with its current and projected future needs.
Whether you live in a brownstone or a condominium, own your property or rent it out, work from home or commute to an office on the other side of town, or have a child in school or not, New York City’s taxes, especially NYC property taxes, are a large part of the cost of living. But the city’s property tax structure is irrational, unfair, and broken, and it needs to be fixed.
A variety of laws governing rates, valuation, and exemptions have created an irrational system in NYC property taxes that distorts the economy and leaves low-income families paying a disproportionate share of the tax burden. It is not uncommon, for example, that a modest one- or two-family home in a working-class neighborhood can pay the same taxes as a multimillion-dollar brownstone built just 10 years ago.
In addition, the tax code treats different types of residential properties differently in terms of valuation methods and assessments, tax caps and rates, and exemptions and abatements in NYC. For example, buildings with four or more residential units are taxable as rental properties while building with three or fewer are treated as owner-occupied dwellings. These irrationalities in NYC property taxes are not only expensive for New Yorkers, but they also discourage the production of apartments and other types of housing that are needed to serve a growing population.
The root of these distortions in NYC property taxes is a complex system for assessing residential properties that involves four separate assessment classes: small homes for one, two, or three family households; cooperatives and condos, which are taxable as rentals; and small rental buildings with four to ten apartments. The City does not determine the values of these property types based on comparable sales, as it does for 1-3 family homes, but must instead use a statutory limit that requires assessors to value co-ops and condo apartments as if they were income-producing properties, creating an underestimation bias that grows over time.
Taxes on residential and commercial properties vary across NYC based on how much a property’s assessed value rises or falls during the year. In order to maintain a stable levy, NYC’s property tax administration relies on a reserve of money that is made up of prior year balances plus the projection of future increases or decreases in property values and abatements, cancellations, and delinquencies, all of which reduce or increase the overall property tax rate.
A smarter NYC property taxes structure would eliminate these distortions by requiring that any changes in the taxes paid on one type of property be offset dollar for dollar with corresponding increases or decreases in other types of properties. These changes could be targeted specifically to address a regressive property tax on utilities’ real estate holdings, which currently raise 6% of all property taxes in NYC and pass on their costs to every customer.
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