Why Is This Condo's Property Tax Bill $60,000? It's complicated.
Q: A buyer paid $2 million for a two-bedroom penthouse in a 174-unit condo building in Midtown, with approximately 1,800 square feet of interior space and 900 square feet of outdoor space. The annual property tax is $60,000. Meanwhile, a one-bedroom apartment in Turtle Bay listed for $1.6 million with annual taxes of only $11,000. Why is one property's tax bill so much higher than another's? And is it possible to appeal a tax bill?
A: Property taxes for condominiums in New York City are calculated differently than taxes in other dwellings, so comparing tax bills without considering property type won’t be useful, replies the Ask Real Estate column in The New York Times.
Most condominiums and housing cooperatives are Class 2 properties, and the city assesses them as if they were market-rate rental buildings for the purpose of calculating taxes. A Midtown Manhattan condo apartment is taxed this way, and the building’s would-be net operating income is part of the tax calculation.
“The net operating income will be dramatically higher for a Fifth Avenue apartment versus an apartment of similar size in most parts of the Bronx,” says Brett Gottlieb, a partner at the law firm Herrick Feinstein.
In larger condominiums, the city determines a building’s market value, including estimated income and expenses, by comparing it to rental buildings that are similar in size, location, number of units and age. The city also uses assessor reviews and statistical modeling of similar properties. It then applies a capitalization rate — the expected rate of return based on the income assigned to the property — to the building’s estimated net income.
After the city sets the taxes for an entire condominium building, it divides the tax amount for each unit-owner. This is typically done by unit size, depending on the terms set in the building’s offering plan. (A co-op's tax bill is levied on the building, and each shareholder's portion is baked into the monthly maintenance.)
An individual condominium unit-owner can contest her own property tax bill, but by law she'll have to do a valuation of the entire building. This can be a complicated process requiring professional help, and there's strength in numbers. A tax certiorari lawyer is more likely to take on such a case if all unit-owners agree to contest the building’s assessment, says Peter Blond, a partner at the law firm Brandt, Steinberg, Lewis & Blond, which specializes in tax matters.
Another option is to wait for the state Legislature to approve long-awaited reforms to the city's arcane system of calculating and levying property taxes. But since mayors have been promising such reform for decades without delivering, it might be smart to consult a tax certiorari lawyer.