Special 4-Part Report: What You MUST Know for the 2013 Budget. Part 1: Taxes

"I always tell my clients that I'm going to make a guess and 99 percent of the time I'm going to be wrong," he says. But I can make an educated guess. Some buildings don't go up at all, and some go up 20 or 30 percent. Some [assessments] will come down." 

New York City operates under a transitional tax system, he notes. All real property is reassessed annually. There are two assessed valuations. The actual assessed valuation made public on January 15 of each year is the assessor's determination of the proper value.

(This has nothing to do with market rate, by the way; it's based on a percentage of what a "comparable" rental building would earn in rent. This apples-and-oranges inequity makes co-ops and condos the only New York residential properties valued as if they were commercial, income-producing real estate — and unlike with single- and two-family homes and townhouses, there's no annual cap. Because the city has tried to impose unrealistic triple-digit increases, some lawmakers have been trying to pass corrective legislation.)

How They Figure 

The transitional (taxable) assessed valuation is derived from the actual assessed valuation. Under this system, any increase in the actual assessment is phased in over a five-year period in equal annual installments. The phase-in each year is called the transitional" or taxable assessed" valuation. 

It is important to understand the following principles:

1) Taxes are always paid on the lower of the actual or the transitional assessment.

2) Any increase of the actual assessment starts a five-year track that becomes locked in place unless later reduced by legal action. Thus, if an assessment of $100,000 for 1995/96 is increased to $150,000 for 1996/97, the increase of $50,000 starts a five-year track of increases of $10,000 a year in the taxable assessment. 

3) Even though a five-year track is running, the tax department is not barred from increasing the actual assessment in a subsequent year, starting a new five-year track that is added to the original track. There are usually several tracks running at all times.

4) Any reduction in the actual assessment, by a standard legal action called certiorari, will adjust that year's five-year track downward, thereby creating a tax benefit in each year of the five-year track. This benefit is locked in place even if the assessor increases the actual assessment in a subsequent year. See the Habitat article "Tax Revolt 2012: Co-op / Condo Group Sets Rally to Support Tax-Fairness Bill.")

5) The benefit from a certiorari settlement usually consists of a cash refund as well as a future savings in taxes. The refunded portion may be much smaller than the future savings. The size of the refund depends upon the history of the assessments on the particular parcel. The refund arises from overpayment of the taxes for the first year of the track where the taxes were paid on the original transitional assessment. After the settlement, the remaining payments in the track are made on the reduced transitionals, giving rise to the savings.

Tuesday morning: What You Need to Know About 2013 Payroll and Water Expenses

Tuesday afternoon: The Outlook for Your 2013 Insurance Bills

Thursday morning: What to Expect in 2013 Fuel Costs

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