Will NYC Property Tax Reform Raise Your Taxes?

NYC property tax reform is on the horizon. The current system, which was enacted in 1981, has been derided by critics as being overly complex and unfair. In particular, 1-3 family homes receive much more favorable tax treatment compared to condos and co-ops.

Discussions about overhauling the property tax system in NYC reached a fever pitch in early 2022, shortly after the New York City Advisory Commission on Property Tax Reform released its final report on December 29, 2021.

The Commission proposes that property taxes for all types of small residential properties in NYC be calculated based on actual market value multiplied by 0.814%.

This means that NYC homeowners who currently pay less than $8k in annual property taxes on homes worth $1 million or more will face significantly higher property taxes going forward.

In particular, townhouses in Brownstone Brooklyn as well as units in buildings with 10 or fewer units will face significant risk of higher property taxes under the Commission’s proposed system.

Click on the sections below to learn more about proposed reforms to the property tax system in NYC and how it will affect you.

What’s wrong with the current property tax system in NYC?
Will my NYC property taxes go up under the proposed reforms?
Which properties will benefit from NYC property tax reform?

Favorable Tax Treatment for 1-3 Family Homes

Under the current NYC property tax system which was enacted in 1981, 1-3 family homes receive much more favorable tax treatment compared to condos and co-ops. While the current Cooperative and Condominium Property Tax Abatement helps mitigate the difference, it’s far from a comprehensive solution.

Here’s an example of the favorable treatment of many Brownstones under the current property tax system in NYC:

The property taxes for a $6,000,000 brownstone in Prospect Heights located at 345 Park Place are just $694/month according to a recent property tax statement:

This equates to an annual property tax obligation of just 0.15% of the property market value. This is roughly 85% less than the nationwide average of just over 1% of market value.

By comparison, the monthly property taxes on a $1,200,000 Murray Hill condo at 415 East 37th Street #29G are $1,443.32/month according to a recent statement.

This is more than double in property taxes compared to the Prospect Heights townhouse despite the condo having a market value which is 80% less than the brownstone.

Restrictions on Large Annual Tax Increases

The current system also prevents large annual increases in property taxes by limiting assessment increase changes to 20% over any five year period. Moreover, the current system does not re-assess properties to market value at the time of a resale. This means that property taxes don’t automatically skyrocket upon a resale as is the case in other jurisdictions like California.

The current system presents a major windfall for buyers as well as existing homeowners in areas of rapidly appreciating prices, such as Bed-Stuy.

Your property taxes will likely go up significantly if you currently pay less than $8k in annual property taxes and your home is worth more than $1 million.

Under the new system, property taxes for small residential properties will be calculated based on actual market value multiplied by 0.814%. This will result in a huge increase in annual property taxes for many properties.

Here’s an example of how the property taxes will increase on a typical brownstone in Stuyvesant Heights (307 Halsey Street) under the Commission’s proposed system:

In this example, annual property taxes will go up by 224% under the Commission’s proposal. This represents an additional $507/month outlay in carrying costs.

Unfortunately, Brooklyn brownstones aren’t the only types of properties which may be saddled with higher property taxes in the future. We’ve also observed that units in smaller buildings with 10 or fewer apartments may face significant increases. The apartments at risk are those which are in “Tax class 2C – Coop Or Condo 2-10 Res Units” under the current system.

Here’s an example of how a unit in a small Carroll Gardens condo building with just 5 apartments will be impacted by the Commission’s proposed property tax overhaul:

In this example, annual property taxes will go up by 415% under the Commission’s proposed system. This represents an additional $716/month outlay in carrying costs.

You can estimate your home’s property taxes under the newly proposed system using this tool.

As we hinted earlier, the Commission also “recommends eliminating current assessed value growth caps for the new residential class and instituting five-year transitional treatment for market value growth, whereby year-on-year changes in market values are phased-in over five years at 20 percent per year.”

This means that property taxes for all homes will go up considerably faster than they otherwise would have under the current system.

Now let’s imagine that you buy a brownstone in Bed-Stuy as an investment property. Suddenly, your property taxes double because the city implements the Commission’s proposed reforms. Shortly thereafter, New York passes good cause eviction legislation which prohibits you from raising rent more than 3% a year.

You’re now faced with a nightmare scenario of ballooning carrying costs and rent which cannot legally be raised sufficiently to cover the additional costs. Good luck selling this property for anything near what you paid for it!

Most analysts believe that the proposed overhaul of NYC’s property tax system will reduce property taxes for properties in Staten Island, South Brooklyn neighborhoods such as Bay Ridge and parts of Queens.