When is a luxury condo not a luxury condo?
When the city assesses it for property taxes. Then it becomes a rental.
Under the city’s notoriously convoluted property-tax code, condos and co-ops are assessed for property-tax purposes as if they were rental buildings. This rule, based on the concept of guessing how much income apartment buildings could generate in rent rolls, leads to vastly undervalued condos and co-ops.
That, in turn, leads to low assessments that can mean low tax bills for condo and co-op owners.
Thus, the New Yorkers who can afford to pay more in property taxes end up paying less.
Not so for renters and commercial-building owners, as The Lab reported last week. Their property-tax burdens have inched upward since the early 1980’s relative to those of city homeowners.
And now that the city estimates the five boroughs’ property value at more than $800 billion for fiscal year 2008—an increase since May 2006 of 19 percent—taxes are likely to increase, despite Mayor Michael Bloomberg’s late January proposal of a one-time $750 million tax cut.
The die is cast, the gamble continues, because condos and co-ops are treated like rentals—sometimes the cheapest rent-stabilized rentals in the neighborhood.
Go to the city’s Department of Finance Web site, http://www.nyc.gov/finance, and click under the “Property” link on the left. Plug in addresses or building-lot numbers and find assessments and likely tax bills. It’s a digital parlor game of shock you can play.
Take a six-story co-op doorman building in Morningside Heights. The city valued the entire building at $1.78 million; it’s assessed for taxes at $495,485, based on comparisons with the values of nearby rental buildings, many either rent-stabilized or owned by neighborhood hegemon Columbia University and rented to students and faculty at below-market rates.
To put that into ridiculous perspective, the average sales price of a Manhattan co-op unit was $1,047,219 by the start of 2007, according to appraisal firm Miller Samuel.
Or take 110 Livingston, a swanky new condo conversion of the old Board of Education headquarters in once-gritty, now-fashionable downtown Brooklyn. The 300-unit development’s valued at $62,525,000, and assessed for taxes at $28,136,250. The average sales price of a Brooklyn condo unit was $705,000 at the beginning of this year, according to brokerage the Corcoran Group.
You do the math.
The city’s Independent Budget Office in December released a major report on trends in the city’s property taxes since the early 1980’s, when the state and the city started making changes that ultimately benefited city homeowners over renters.
One of the biggest changes was how the city assessed co-ops and condos.
“Given the age and location of many co-ops and condos,” the report said, “the comparable buildings are rent-regulated buildings.”
Property-tax assessments for condos and co-ops would be as much as 5.2 times higher in fiscal year 2007 if the city used sales price rather than nearby rental comparisons as the measure, according to the budget office.
The median condo or co-op apartment value, in fact, according to the budget office, would be $319,326 in fiscal year 2007, not the city’s much lower median value of $61,789 (oh, if only that were true!).
Using sales prices rather than rental comparisons, the true market value of New York’s condos and co-ops would be $216.8 billion in the current fiscal year, which ends June 30, according to the Independent Budget Office; the city’s got it officially pegged at $52.4 billion. (The calculations exclude co-ops and condos that are fully tax-exempt.)
That’s a big difference—and one that’s not likely to change.
And any property-tax cuts will be mere relief—however brief, considering the recent rise in values—leaving in place a confusing system that measures a newer luxury condo as if it were a rental with roots in the early 20th century.