Many people understandably worry about property taxes when they think about owning real estate in New York City. New York City is as one of the most expensive cities in the world. Many think that the taxes reflect this, but this isn’t necessarily the case for property taxes. In fact, SmartAsset cites that New York City property rates are lower than the statewide average. While the average property tax across New York State is 1.69%, this is only 0.88% for New York City. They’re also much lower than other cities like Chicago (2.1%), Boston (1.22%), and Houston (2.26%).
Additionally, New York State doesn’t impose a property tax on residents. It’s the local and county governments that assess and levy these taxes. Thus, New York property taxes differ depending on your location. This can be a complex topic and is often confusing. In this article, the realtors at Robert DeFalco Realty will break down property taxes in Manhattan, New York, and outline what you need to know about them.
What Are Property Taxes?
Property taxes are local taxes on all real property, including land and the structures built upon it, depending on their worth. This ranges from houses and apartments to office buildings and even vacant land. Local governments utilize New York property taxes to finance civic and social needs. These include education, health, transportation, and more. According to the NYC Department of Finance, property tax made up 48% of all city tax dollars in the 2021 fiscal year. The city spent 31% on education, 28% on uniformed agencies, 18% on health and welfare, and 23% on transportation, housing, parks, etc.
Property Taxes: Manhattan and Other New York City Boroughs
Because property taxes differ across the state, we’re specifically discussing property taxes for New York City in this article. The New York City Department of Finance determines these by assessing residential and commercial real estate properties.
How Are Property Taxes Assessed?
The NYC Department of Finance comes up with a tentative value assessment and a final assessment every year. You can contest these assessments if you believe they’re incorrect. It’s important to note that these assessments depend on market value and percentages of market value. Properties are also divided into different tax classes, with property tax based on tax class.
The NYC Department of Finance groups properties into the following four different tax classes in 2022:
1. Class 1 – 19.963%
2. Class 2 – 12.235%
3. Class 3 – 12.289%
4. Class 4 – 10.755%
Only the first two classes refer to residential property taxes. Class 1 refers to one-to-three-unit residential properties. Class 2 properties, on the other hand, refer to residential properties with four or more units. These include both condos and co-ops.
Classes 3 and 4 are non-residential properties, with Class 3 properties referring to those holding utilities and other entities such as special franchise properties. Finally, Class 4 properties are commercial buildings, including office buildings, hotels, stores, and factories.
These classifications determine one’s annual property tax. You can calculate the annual property tax by multiplying the tax value of a property by the tax rate determined by the classes mentioned above. For example, if the tax value is $20,000 and the property is a Class 1 property (19.963%), the annual property tax would equal $3,992.6. However, since property tax rates change every year, it’s critical to keep up with these changes and any exceptions. Despite remaining in the same class, the amount you pay in property taxes may differ every year.
Calculating Market and Assessment Value
Individuals should note that the tax they pay is not on the market value of their property but instead on the property’s assessed value. For Class 1 properties, one can calculate the property’s market value by considering similar properties in the area and their selling prices. Then, the authorities use this to determine assessed value, i.e., a percentage of the market value. However, for Class 2 properties, they determine the market value by examining a building’s potential rental income and expenses.
The assessed value may differ from year to year. However, there is usually a cap on this, unless owners make physical changes to their properties. Because of this, most Class 1 properties are usually assessed at less than 6% of their market value. On the other hand, Class 2 properties are assessed at 45% of the market value.
Paying Property Taxes
The payment of property taxes also differs between the classes. While Class 1 property owners pay their property tax individually, this differs for condos and co-ops. The government uses the rental income to assess both condos and co-ops. Thus, there is one large tax for the entire building. In co-ops, taxes can be collected along with monthly maintenance payments. The payment is divided based on shares held. In condominiums, you can divide the tax between individual apartments, and the owners pay their taxes directly to the city.
Buy and Sell Manhattan Properties With Robert DeFalco Realty
Despite property taxes seeming high, New York City has several property tax reductions and exemptions in place. Thus, the city is an excellent place to buy and sell properties. Whether you’re looking for your dream Manhattan home or commercial property or you want to sell Manhattan real estate, Robert DeFalco Realty can help. Our experienced real estate agents have residential and commercial real estate expertise. Visit us at one of our New York offices or call us at 718-987-9700 to get in touch. You can also reach out to us on our website here.
