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Masashi Borges-Silva
Pro Member
  • Investor
  • Manhattan, NY
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How to Calculate Property Tax in NYC

Masashi Borges-Silva
Pro Member
  • Investor
  • Manhattan, NY
Posted May 12 2018, 16:40

First of all, I am still new to this forum and REI, and I am doing my own research about REI

One of many questions that I have in REI is how do you accurately estimate the property tax that you might potentially buy?

I think this is one of many key important questions to ask for a beginner like me and also one who has decades of experiences in REI. So where do I start? That was the question I had, and I learned something that I didn't know about property tax in NYC. I would like to share the information here, and hopefully someone can learn something new or points to a right direction to answer your specific needs.

Below is what I learned today: (**Disclaimer** Please use this as a guide only since I am not a professional CPA or expert in NYC tax codes. Please seek a professional CPA for your REI evaluation.**)

There are 4 property tax classes in NYC as below:

  • Class 1: one (1)  to three (3) residential unit properties
  • Class 2: Three (3) or more residential unit property including cooperatives and condominiums
  • Class 3: Utility Company Equipment and Special Franchise property
  • Class 4: All other real property

Table below is the tax rates for each class for 2017 fiscal year.

I believe that this rate is changed every year, and I confirmed that the tax rate for class 1 for 2018 is 20.3850%.  As you can see there is a slight tax rate difference between class 1 and class 2.  I was considering to purchase muti-family property in NYC and this tax rate difference make a difference in how I want to proceed with buying multi-family property.  If you are buying a property that is less than 3 units, your tax rate will be roughly around 20%, and if you buy 3+ units, then your tax rate will be roughly at upper 12%.  I think this information is helpful for me to estimate potential deals with more accuracy.  (Later I learned that assessed value is calculated with different cap in class 1 and 2.  That adds another complexity in this estimation and your future property evaluation)

So next question is, "what do you do with this tax rates??".  Knowing your tax rate is important, but I need to know what that means in terms of purchasing a property.  So I researched around for a little more and found out how to estimate your annual property tax.

In order for you to estimate the annual property tax for your potential REI, you need the followings: Market value, Assessed Value, and Taxable Value (exemptions).  You might be thinking, what are those terms mean...  Believe me, I had the same question!  Here are what I learned:

  • Market Value  This is a value that NYC will determine for you.  NYC uses a magic formula (statistical analysis) to figure out how much your property is worth based on comparing size, style, and age of your unit with your neighborhood.  If you are interested in doing a search, search "property address search in NYC" and you can find Department of Finance Web App to find out Market Value.  It can be little tricky to find out where to find it, and if you need a little help, let me know.
  • Assessed Value  This is where things get little more complicated...  In general, Assessed value is a calculated value using market value.  The formula used is (Market value) x (percentage) = Assessed Value.  The percentage is different in different classes.  For class 1, the percentage is 6% and for class 2, the percentage is 45%.  For the sake of simplicity, I will use Class 1 as an example here.  Let's say the property you are buying has a market value of $100,000 (again, this is the number determined by NYC), then your assessed value would be $6,000 ($100,000 x 6% = $6,000).  However, NY state law limits the increase in assessed value is capped at 6% in a year or 20% in five years.  Again, this can be confusing and not really sure what it means to me...  I will try to explain what this means by using example used by NYC DOF.  Table below is the sample used to explain the cap rate increase in one year or 5 years.

First year is straight forward.  Again, assessed value is (Market Value) x 6% so assessed value is $6000 in year 1.  In year 2, NYC decided that the market value is increased from $100,000 to $150,000.  Using the assessed value formula ($150,000 x 6%), assessed value is $9000.  However, this is more than 6% increase from previous year (50% increase from $100,000 to $150,000).  So this is where this "Capped rate" comes in handy for us.  To determine the assessed value for year 2, simply multiply 6% to previous assessed value plus previous assessed value ($6,000 x 6% + $6,000 = $6,360).  Similarly, year 3 is calculated as follows:  $8,400 = $140,000 x 6% and $6,741 = $6,360 x 6% + $6,360. In a summary, your worst case taxable assessed value can be $6,000, $6,360, and $6,741 in year 1, 2 and 3 respectively.  Furthermore, if your assessed value is more than $7,200 in the first five year, you are capped at 20% increase over 5 years.  That is, since assessed value is $6,000 in year 1, 20% increase of $6,000 is $7,200 ($7,200 = $6,000 x 20% + $6,000).

Anyways, for this example, lets say your assessed value is $6,000 for your first year.

  • Taxable Value (Exemptions)  Now you know your assessed value (for this example, it is $6,000), next step is to calculate your taxable value.  In NYC, I found out that there are four exemption categories as follows: School Tax Relief (STAR) Basic STAR, Enhanced STAR, Senior Citizen Homeowners Exemptions (SCHE), and Disabled Homeowners Exemptions (DHE).  I am just simply borrow the definition and the benefit from NYC DOF as below:

So, to calculate your taxable value, simply use the following: Taxable Value = (Assessed Value) - (Exemptions).  Let's say you are eligible for Enhanced STAR exemptions, then your taxable value would be $5,400 ($5,400 = $6,000 - $600). 

  • Annual Property Tax  Finally, the number you have been looking for...  Now, you have calculated your taxable value, this is the last step to figure out your annual property tax.  For class 1, the formula is as follows: Annual Property Tax = Taxable Value x Tax Rate.  For class 1, tax rate in 2018 is roughly 20% so your annual property tax is... (drum rolls, please!)  $1,080!  Woohoo! now we figured out the annual property tax for our example property which is worth $100,000.  Oh by the way, in case you are wondering where $1080 comes from, it was calculated as $5,400 x 20% = $1,080.

A lot of this information comes from brochures provided by NYC Department of Finance.  I will add the links for class 1 and class 2 brochures in below:

Property Tax Class 1

Property Tax Class 2

Please comment what you think.  Was this helpful or did you like the content/examples?

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