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Much like the MTA, New York City’s mayors have long campaigned on promises to fix what many perceive as an illogical and unfair residential tax system, and yet it has persisted as is for decades. But in March 2024, New York’s Court of Appeals found that the current tax system is “unfair, inequitable, and has a discriminatory disparate impact on certain protected classes” because the higher taxes on rentals get passed on to renters in the form of higher costs, which in turn disproportionately affects communities of color in a violation of the Fair Housing Act.
The city can appeal with the state’s Supreme Court, but The Real Deal notes that it is far more likely that the city’s Department of Finance will use the decision as the basis to change the tax policy. In the meantime, we examine how residential taxes are determined, where the problems lie, and what can be done to solve them. We also look at apartment listings with low taxes for a unit of their size and address – all condos, as taxes are included in co-op maintenance fees.
In this article:
How Residential Taxes Are Determined in NYC
One distinctive aspect of New York City's approach to tax assessments is the treatment of condos and co-ops, even those that have never been rented out due to building subletting rules. State law mandates that assessors value all co-op buildings and condos with more than three units as if they were income-producing properties, regardless if the units are allowed to be rented out.
The standard industry practice for valuing income-producing properties involves dividing the net operating income (NOI) by the capitalization rate. However, city assessors consistently raise the capitalization rate on condos, adding complexity to the process. Moreover, city officials don't rely on widely available market data; instead, they determine market values based on a limited selection of apparently comparable rental buildings in similar neighborhoods.
The issues with this approach, as highlighted by a 2021 Bloomberg investigation, include the relatively small sample size and the unclear method of comparison. Consequently, a walk-up in Chinatown with affordable units might be compared to a building in nearby Soho or Tribeca, leading to inequitable outcomes where the owner of the higher-valued property benefits, and the owner of the lower-valued property loses out.
The issues with this approach, as highlighted by a 2021 Bloomberg investigation, include the relatively small sample size and the unclear method of comparison. Consequently, a walk-up in Chinatown with affordable units might be compared to a building in nearby Soho or Tribeca, leading to inequitable outcomes where the owner of the higher-valued property benefits, and the owner of the lower-valued property loses out.
Despite all residential buildings being treated as rentable when setting tax rates, only a portion of the assessed buildings are rentals, which historically disadvantages most renters. On average, condo owners enjoy a significantly lower effective tax rate than rental building owners. Higher taxes on rental buildings contribute to a higher cost of living for a city predominantly composed of renters.
The Problem with NYC’s Residential Tax System
Two interconnected practices are frequently pointed out as the primary causes of the ongoing unfair treatment of certain property owners and preferential treatment of others in New York City's residential tax system.
Firstly, for decades, city officials have manipulated the taxable value of condos by adjusting their capitalization rate. In essence, the capitalization rate or "cap rate" represents the expected net income the property would generate if rented out (calculated by dividing the net operating income by the property value). Generally, higher cap rates signal higher-risk investments for investors, resulting in lower valuations.
The Bloomberg investigation found that in New York City, assessors frequently double the capitalization rates of condos and, in turn, artificially drive down the value upon which these units are assessed for tax purposes. But there are other problems. The Bloomberg investigation also observed, “In modest neighborhoods, those values are set somewhat closer to actual sale prices; in upscale areas, they’re much farther below the market. In other words, big-dollar properties get a bigger break.” In essence, the effective tax rate on higher-valued properties is often less than half that of lower-valued properties (learn more about the surprisingly low tax rates on some of the city’s highest-valued units here).
Still, the inflation of cap rates and uneven application of these rates across neighborhoods and property types is one of many reasons New York City’s residential tax system is widely acknowledged to be broken, including by New York City Comptroller Brad Lander. In November 2022, he issued a statement acknowledging at least three notable problems with the current system:
1. The rules for valuation differ for 1-3 family homes, co-ops, and condos. Large rentals are taxed at nearly double the rate of condos and co-ops.
2 The system is generally opaque and challenging to comprehend. Variation in assessment ratios based on property type confuses owners and reduces transparency in the system.
3 There is a significant disparity in effective tax rates across neighborhoods. Homeowners in the outer boroughs pay considerably higher rates compared to those in upper- and middle-class Manhattan and brownstone Brooklyn.
The Proposed Fix
Recommendations abound on how to fix the current residential tax system. Among the most popular proposals is to scrap the strange practice of valuing all properties based on their potential revenue generation as rentals. It also goes without saying that given that the market value of properties is now widely available in publicly accessible databases, many critics continue to call for the city to abandon its opaque approach to valuating properties for tax purposes, which is based on only a small and random sample of properties.
Along with his statement outlining problems with the current system, Comptroller Lander also issued several recommendations
for reforming the current system. These include the following:
• Aggregate Class 1, Class 2 condos and coops, and small rentals (up to 10 units) in one class, and uniformly value all properties in the class at sales-based market value.
• End fractional assessments and apply one tax rate to the sales-based market value.
• Phase the changes in over five years, with the potential consideration of allowing homeowners to defer the higher tax burden until the sale of the property, or even waiting until the sale to reset the rates.
• Provide a homestead exemption for homeowners who use their property as a primary residence and circuit breakers to protect potentially vulnerable homeowners in areas where rates may rise over time.
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Challenging an NYC Tax Assessment
While the debate about tax assessments continues, property owners in New York City do have one recourse. If they think their property has been unfairly assessed, they can dispute their tax assessment by following the instructions provided on the Department of Finance site. Notably, there are two deadlines each year. For properties containing three or fewer units, the deadline is March 15. The deadline to dispute residential taxes on all other properties is March 1.
Available Condos with Low Taxes
For those seeking to capitalize on the city's imbalanced tax system for condos and concurrently benefit from abatement programs, explore the list below featuring low-tax condos with ongoing tax abatements. It's important to note that the abatements mentioned have a limited duration, with tax rates gradually increasing over time. The abatement usually extends to the entire building, so be sure to explore other available units within the property. Contact us for a full list of listings with ongoing tax abatements at info@cityrealty.com or (212) 755-5544.
CPW Towers, #14U
$749,000 (-2.1%)
Monthly Taxes: $170
Central Park West | Condominium | Studio, 1 Bath | 579 ft2
CPW Towers, #14U (Douglas Elliman Real Estate)
The Crest, #7E
$849,000
Monthly Tax: $2 | 421-A abatement until 2034
Park Slope | Condominium | 1 Bedroom, 1 Bath | 734 ft2
The Crest, #7E (Compass)
201 Spencer Street, #9B
$869,000
Monthly Tax: $1 | 421-A tax abatement ending in 2030
Bedford-Stuyvesant | Condominium | 1 Bedroom, 1 Bath | 600 ft2
201 Spencer Street, #9B (Corcoran Group)
83 Woodhull Street, #3
$1,150,000
Monthly Tax: $1 | Tax abatement in place until 2031
Carroll Gardens | Condominium | 2 Bedrooms, 2 Baths | 1,020 ft2
83 Woodhull Street, #3 (Compass)
The Artisan, #C
$1,175,000
Monthly taxes: $15 | Tax abatement in place through 2033
Williamsburg | Condominium | 2 Bedrooms, 1 Bath | 832 ft2
The Artisan, #C (Compass)
273 Clifton Place, #4F
$1,200,000
Monthly Tax: $3 | Tax abatement in effect until 2034
Bedford-Stuyvesant | Condominium | 1 Bedroom, 1 Bath | 1,036 ft2
273 Clifton Place, #4F (The Agency Brokerage)
Rhapsody on Fifth, #2B
$1,295,000
Monthly Tax: $2 | Tax abatement expires in 2025
Harlem | Condominium | 2 Bedrooms, 2.5 Baths | 1,800 ft2
Rhapsody on Fifth, #2B (Compass)
One Manhattan Square, #40J
$1,350,000 (-1.8%)
Monthly tax: $1 | 20-year 421a tax abatement in effect
Lower East Side | Condominium | 1 Bedroom, 1 Bath | 695 ft2
One Manhattan Square, #40J (Nest Seekers LLC)
One Strivers Row, #4A
$1,375,000
Monthly tax: $17 | Tax abatement until 2032
Harlem | Condominium | 3 Bedrooms, 3 Baths | 1,600 ft2
One Strivers Row, #4A (Serhant LLC)
100 West Condos, #16J
$1,495,000
Monthly tax: $655
Broadway Corridor | Condominium | 2 Bedrooms, 1 Bath | 971 ft2
100 West Condos, #16J (Corcoran Group)
130 Barrow Street, #218
$1,495,000
Monthly tax: $713
West Village | Condominium | 1 Bedroom, 1 Bath | 756 ft2
130 Barrow Street, #218 (Douglas Elliman Real Estate)
215 East 80th Street, #9A
$1,590,000 (-3.6%)
Monthly tax: $726
Yorkville | Condominium | 2 Bedrooms, 1 Bath | 884 ft2
215 East 80th Street, #9A (Hauseit LLC)
25 Fifth Avenue, #11H
$1,725,000
Monthly tax: $749
Greenwich Village | Condominium | 1 Bedroom, 1 Bath | 727 ft2
25 Fifth Avenue, #Number11H (Bond New York Properties LLC)
The Rockwell, #4H
$1,755,000
Monthly tax: $930
Broadway Corridor | Condominium | 2 Bedrooms, 2 Baths | 1,132 ft2
The Rockwell, #4H (Toll Brothers Real Estate Inc)
Trump Parc, #9G
$2,000,000
Monthly tax: $1,044
Midtown West | Condominium | 2 Bedrooms, 2 Baths | 1,230 ft2
Trump Parc, #9G (Douglas Elliman Real Estate)
255 Bowery, #5
$2,395,000
Monthly tax: $943
Lower East Side | Condominium | 2 Bedrooms, 2 Baths | 1,206 ft2
255 Bowery, #5 (Corcoran Group)
222 East Broadway, #4A
$2,875,000
Monthly tax: $1,362
Lower East Side | Condominium | 3 Bedrooms, 3 Baths | 1,471 ft2
222 East Broadway, #4A (Corcoran Sunshine Marketing Group)
Sheffield 57, #42H
$4,500,000
Monthly tax: $809
Midtown West | Condominium | 3 Bedrooms, 3.5 Baths | 2,160 ft2
Sheffield 57, #42H (Douglas Elliman Real Estate)
Would you like to tour any of these properties?
Just complete the info below.
Or call us at (212) 755-5544
Would you like to tour any of these properties?
Contributing Writer
Cait Etherington
Cait Etherington has over twenty years of experience working as a journalist and communications consultant. Her articles and reviews have been published in newspapers and magazines across the United States and internationally. An experienced financial writer, Cait is committed to exposing the human side of stories about contemporary business, banking and workplace relations. She also enjoys writing about trends, lifestyles and real estate in New York City where she lives with her family in a cozy apartment on the twentieth floor of a Manhattan high rise.
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