The Townhouse Specialist: Taxes

Taxes

Yearly taxes for Manhattan townhouses range from $5,000 to $100,000.

Each year, the New York City Council sets the tax rate for each class of real property. The rate is applied to the property's taxable assessed value to determine the amount of real estate tax due for the year.

YEAR CLASS 1 CLASS 2 CLASS 3 CLASS 4

19/20 21.167% 12.473% 12.536% 10.537%

18/19 20.919% 12.612% 12.093% 10.514%

What is a property tax assessment?

An assessment is a set percentage of market value.

How does the Department of Finance estimate your property value?

Finance is required to estimate the value of your property as of January 5th each year. Finance uses one of three approaches to determine a property's market value: sales comparison, cost, and income capitalization.

Sales Comparison -- Finance analyzes sales of similar, recently sold properties to determine the most probable selling price of the property being valued. This method is used most often to value small, residential properties (e.g., one- to three-family houses).
Cost -- Finance estimates the land value and then determines the cost of reproducing or replacing the existing structure on the property being valued. This method is used for specialty properties, including utility properties.
Income Capitalization -- Finance determines value based on the income that can be generated by renting the property. Finance estimates the income, expenses, and a rate of return for an investor called a capitalization rate. This approach is generally used for income-producing properties, such as office and apartment buildings.
- Cooperatives and condominiums: State law requires that Finance value cooperatives and condominiums as if they are rental apartment buildings. This means that Finance’s value estimate is not based on sales prices but is based on an estimate of the rent that would be charged for the units in the cooperative and/or condominium if the building were a rental.

How does Finance determine your assessment?

Finance’s determination of your assessment is a three-step process.

First, State law requires that Finance assign every property to one of four tax classes:

Class 1: Includes most residential property of up to three units (one-, two-, and three-family homes and small stores or offices with one or two apartments attached), vacant land that is zoned for residential use, and most condominiums that are not more than three stories.
Class 2: Includes all other property that is primarily residential, such as cooperatives.
Class 3: Includes property with utility company-owned equipment.
Class 4: Includes all commercial or industrial property that is not in the other three tax classes.

Second, State law requires that Finance assess properties in each class at the same percentage of value -- called the assessment ratio. Finance multiplies its estimated market value by the assessment ratio for your class of property:

Class 1: Assessment ratio is 8 percent. For example, a property that Finance estimates to be worth $100,000 would have an assessment of $8,000.
Class 2, 3 & 4: Assessment ratio is 45 percent. For example, a property that Finance estimates to be worth $100,000 would have an assessment of $45,000.

Third, State law requires that Finance follow certain assessment rules unless the change is because of a physical increase resulting from construction, renovation, and/or demolition:

Class 1: We cannot increase assessments on a property more than 6 percent each year or more than 20 percent in five years.
Class 2: We cannot increase assessments on properties with less than 11 units more than 8 percent each year or more than 30 percent in five years. Assessment changes on properties with more than 10 units must be phased-in over five years.
Class 3: No assessment limitations.
Class 4: Assessment changes must be phased-in over five years.

How often are market values changed?

Finance is required to revalue property every year to reflect the ever-changing New York City real estate market.

Assessment Definitions

ASSESSMENT RATIO / ASSESSED VALUE

Finance determines the assessed value of your property by multiplying the market value by the assessment rate, which is different depending on the tax class. The assessment ratio for Class 1 is 8 percent. For the other tax classes, the assessment ratio is 45 percent.

EXEMPTIONS AND ABATEMENTS

The Department of Finance administers several exemption programs that encourage new construction and renovations (421-a-c and J-51). In addition, Finance administers the exemption program for nonprofit organizations (420-a) and individuals (seniors, disabled, veterans, STAR). Finally, Finance is responsible for the abatement program for cooperatives and condominiums. An exemption provides tax relief by reducing a property’s taxable assessed value, the base amount to which the tax rate is applied. Abatements reduce the tax due because a credit is given against the tax.

Finance encourages all property owners to file for any tax reduction benefits they may be entitled to receive. If you are eligible for more than one exemption, you may also view a breakdown of exemption benefits on the assessment roll. Abatements are determined in June after the new tax rates are set, so they do not appear on the assessment roll.

LIMITS ON INCREASES AND TRANSITIONAL VALUES

State law limits assessment increases on residential properties with ten or fewer units. Assessments for Class 1 properties may not increase more than 6 percent over one year and 20 percent over five years. Assessments for Class 2 properties with ten or fewer units are limited to 8 percent increases over one year and 30 percent over 5 years. Other properties in Classes 2 and 4 are subject to transitional assessments, which phase in assessment changes over five years. The limits on increases and transitional phase-ins do not apply to increases due to construction or renovation work.

TAXABLE ASSESSED VALUE

This is the assessed value minus any exemptions.