Every week Mansion Global asks a tax question to real estate lawyers. Here’s this week’s question.
Q. Can you explain the differences in property taxes when buying a condo or co-op in New York City?
A: The ownership structure works differently in co-ops versus condos, and therefore the structure and amount of your tax bill will work differently in both types of buildings.
“In a cooperative, the building is owned by a company and the people who live in the building get shares in the company and own lease [when they buy an apartment]said Steve Wagner, attorney at Adam Leitman Bailey, PC New York Real Estate Attorneys. “With regard to taxes, there is one bill that goes to the company.”
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For cooperative shareholders, the cost of the building’s total tax bill is baked into monthly maintenance fees, as opposed to a standalone individual tax bill.
“In a flat, the board owns nothing,” said Mr. wagner. “It’s like splitting it up into many separate tax lots instead of one big building. Each apartment is separate, so taxes are paid by the persons who own the apartment rather than the company.” In an apartment, owners then pay a separate tax bill in addition to their monthly common costs for building maintenance.
“That’s one of the reasons why condos are more expensive than co-ops,” added Mr. Wagner. “The amount that you have to pay monthly for maintenance is lower. But on the other hand, you have to pay your own taxes.”
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Homes in New York City are also divided into two categories: Class 1 properties with one to three units, which currently have a tax rate of 19.963%, and Class 2 properties with more than four units, which have a tax rate of 12.235%, according to the New York State Department of the city’s finances.
The estimated value for class 1 buildings is based on a percentage of the market value of the property and cannot be increased by more than 6% in one year or 20% in five years without major addition or renovation.
In Class 2 buildings, value is assessed on the basis of a formula that takes into account the building’s potential income and expenses, with a 45% rating.
To reduce the tax bill for individual homeowners in Class 2 buildings, the city is offering a tax credit for co-ops and apartments if certain requirements are met, including that the unit being taxed is the owner’s primary residence and the resident is no longer than three units in the same building, according to the city’s Treasury Department.
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