Tax impact of SRO conversion
Hi, I am considering the purchase of a 2-family townhouse (tax class1) that is being converted from a SRO (tax class2). The house has been gut renovated. The new Certificate of Occupancy is still pending approval. The sale is contingent to the new COO. Current property taxes are around $21,000. I am trying to estimate future property tax bills for the house. The city provides some very good documents: [http://www1.nyc.gov/assets/finance/downloads/pdf/brochures/class_1_guide.pdf](http://www1.nyc.gov/assets/finance/downloads/pdf/brochures/class_1_guide.pdf) [http://www1.nyc.gov/assets/finance/downloads/pdf/brochures/class_2_guide.pdf](http://www1.nyc.gov/assets/finance/downloads/pdf/brochures/class_2_guide.pdf) **For Class 1 we have:** Property tax = Assessed Value * 19.5% = (Market Value * Assessment Percentage) * 19.5% with Assessment Percentage = 6% In addition, property taxes cannot grow more than 6% per year or 20% in 5 years. **For Class 2 we have:** Property tax = Assessed Value * 12.5% = (Market Value * Assessment Percentage) * 12.5% with Assessment Percentage = 45% Whereas, for Class 1, Market Value is based on recent surrounding transactions, for Class 2 it is based on potential expected revenues from the property. If you apply the above rule for Class 1 using recent transactions in the neighborhood in order to assess market value, you get a number pretty close to current taxes paid under Class 2 (>$20,000). However, this number is much higher than property taxes paid by most surrounding buildings under Class 1\. This is likely explained by the fact that those buildings benefit from the 6% maximum annual tax increase cap. **Hence my question:** Will my new property taxes under Class 1 benefit from any lower assessment value (in line with neighbors), or should I expect paying taxes based on the full market value ? This greatly changes the economics of my project. I have asked many real estate professionals and no one seems to have a clear answer.
billcash
in Taxes 8 years and 10 months ago
2
1489
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2 replies
xchx | 8 years and 10 months ago
What your neighbors pay in taxes doesn’t matter. But you also can’t assume that the “market value” as determined by the tax department will actually be similar to recent sales, or what you are paying for the house. If you weren’t doing any renovations, in my experience, they would make your “market value” similar to your neighbor’s market value, which you can look up on the NYC Department of Finance website. (The market value isn’t affected by the cap on annual increases so all neighbors in your tax class should be somewhat similar unless they’ve done renovations) This part I don’t have first-hand knowledge of, but from what I’ve heard, they basically add the estimated cost of your renovations to your market value, before calculating the taxes.
resident2 | 8 years and 10 months ago
It will depend on how quickly the tax assessor gets the paperwork for the new assessment based on the change of use, capital improvements etc., the way the building permits were filed and when the sale (undeniable market value hits the records). To get the lowest increase (it will always be an increase!) the order would need to be; permits filed with low construction value and the change of assessment hitting before the sale, not likely at this time of year because the assessors do not do this work at this time of the year. So go into it expecting the higher number. No you cannot challenge based on the neighbors of older houses and long time residents. Yours will be almost like a new house; and the “improved” property value because of capital improvements cannot be challenged.