New York City property taxes are based on a property assessment plus relevant tax rate. Each property is then broken down into classes and taxed based on the applicable rate and assessment ratio per class. When you dive deeper into the way the New York City government taxes property, the complicated tax system seems to favor certain groups, which has created much criticism of the system.
Property assessments in New York City are based on the market value, which refers to the amount the property would sell for under normal conditions. Each year an assessor uses several factors to determine the market value of the home, including external characteristics, the square footage, the number of rooms, the location of the home, and how other similar homes have sold in the area.
Although assessments are based on quantifiable data, they are still essentially estimates and can be contested. If a person files a grievance, the Small Claims Assessment Review then goes on the claim.
Property Tax Classes and Caps
Property taxes are calculated by the property’s taxable assessment. That number is equal to the property assessment minus any possible exemptions. The taxable assessment is then multiplied by the tax rate of the property.
1. Class One
Class One properties include most residential properties that have three units or less. Class One properties also include vacant land zoned for residential use and small co-op and condominium apartment buildings. Condos in Class One must be three stories or less. Class One properties are taxed at 16.787%, with an assessment ratio of 6%.
2. Class Two
Class Two properties include most residential properties that don’t meet the qualifications of Class One. These properties include residential rentals, co-ops, and condos and have a tax rate of 13.053%, with an assessment ratio of 45%.
3. Class Three
Class Three properties include most utility properties and are taxed at 12.577%, with an assessment ratio of 45%.
4. Class Four
Class Four real estate includes commercial and manufacturing properties in New York City, including offices and factories. Class Four properties are taxed at 10.612%, with an assessment ratio of 45%.
Assessment Ratio Caps
For Class One real estate, value increases are capped at 6% per year and 20% over five years. For Class Two properties, there’s an 8% cap. These caps and other provisions have provided a much-criticized gap for property taxes in New York City.
What Does It All Mean?
If the New York City property tax system seems difficult to understand to you, you’re certainly not alone. The system’s complexities are one large complaint, but it’s not the only one. Many critics also believe the way properties are taxed led to higher-income families paying lower percentages than their lower-income counterparts do.
Furthermore, the tax system is set up to essentially subsidize residential housing by taxing commercial properties at a higher rate.
It seems as though residents are receiving much better tax rates than businesses, and it’s much more favorable to rent than buying. This complicated system tends to favor higher-income families with much fewer property taxes than businesses or middle-class families.