Because the city often relies on year-old income data to assess property taxes, many property owners -- from the landlords of large commercial buildings to individual cooperative and condominium unit dwellers -- could discover that their assessments have increased despite a recent decline in property values, according to Joseph Giminaro, co-manager of Stroock & Stroock & Lavan’s tax certiorari group.
Assessments may go up while sales prices come down
The city raises property taxes in two ways, he explained: increasing tax rates, which Mayor Michael Bloomberg's plan would affect, and increasing assessments. Property is assessed at a percentage of its market value, Giminaro said, but the value is not determined through sales price, but through data on income and expenses. Residential buildings are based on potential rental value, while commercial buildings are assessed based on rental income. To determine income levels, the city often relies on data that is a year or more old, Giminaro said, since current data isn't yet complete in time for the January 15 assessments.
When the real estate market is on the rise, that formula can work to the owner's advantage. But this year, the city will create its assessments based on data from 2007 -- when New York City was at the peak of its housing boom. As a result, the recent drop in sales prices and rents will not necessarily result in a drop in tax assessments.