Is NYC Overcharging You in Property Taxes?

How much are you being charged for Property Taxes in New York City?

I’m sure the thought has crossed your mind.  However, we understand why property tax is collected.  It takes a lot of money to run a City that never sleeps.

Property Tax in New York City funds public school education, police and fire protection, emergency services, garbage pick up, public health care and hospital services, roadway and street maintenance, etc…

And while New York City has diverse sources of revenue (Sales Tax, Transfer Tax, Fees, Fines, etc…), its largest source is Property Taxes.

Given the benefits of living in our fair city, its not unreasonable to pay property tax.  But would you be willing to OVER PAY property tax?

I don’t know about you, but that answer for me is NO.  But how do you know you’re NOT being overcharged?

Give me 5 minutes to explain NYC’s method for distributing the property tax burden.

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Property Tax Rates in New York City are determined in a 2 step process

A) How much money needs to be raised for the coming fiscal year for

1. Obligations (i.e., Police, Fireman, Teacher wages),
2. Commitments (i.e., interest payments on tax revenue bonds),
3. Contingencies (i.e., lawsuit settlements), and
4. Infrastructure (i.e., road & bridge repairs) for a given fiscal period.

B) Then, determine the Tax Rate to charge Property Owners to raise the revenue.

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For the sake of our discussion, imagine the Mayor and City Council agree on a $10 billion budget.  And let’s also assume that there are 15 million properties to charge a property tax on.

Absent any exceptions, each of the 15 million properties would have a tax liability of $666.67.

$10,000,000,000 / 15,000,000 = $666.67

Now that we know how much needs to be raised and what the potential tax bill might be, all that’s needed is HOW to charge it.  Or, technically speaking, how to determine the Tax Rate.

The above simplifies a more complex process, as not every property that’s taxed is of equal size or use.

With that in mind, it’s fair to assume that based on the

1. Size of the property and
2. it’s legal Use, as well as
3. where the property is Located,

each property will have a different value.

Add to that how much a property has been improved and you’ll have the components the Tax Assessor uses to determine the Market Value of real property in New York City.

The method established for assessing property taxes, which also attempts to distribute the tax burden fairly, is based on the market value (ad valorem) of real property across the city.

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Given how convoluted the IRS tax code is, this seems pretty straight forward.  As the value of real property increases, so do New York City’s ability to raise revenue…without introducing major legislation to increase property taxes.

However, as I advise clients on the market value of their home prior to listing it for sale, I ‘ve noticed a difference in valuation.  Take a look at what New York City’s tax assessed value is for fiscal year 2010 on a 2 family, 2 story brownstone row house on Van Buren Street in Bedford Stuyvesant‘s 11221 zip code in Brooklyn.

New York City’s tax assessment has ascribed a tentative market value of $591,000, an increase in value by $101,000 from 2009′s assessed value.

The annual tax bill assessed for fiscal year 2010, on a property its size, use and in this location is approximately $1,600.

Now take a look at what the market value is presently for the same property if it were offered for sale to the public.

If this home was offered for sale today (8/20/09), it’s potential appraised market value is $424,242.

It appears there’s a huge disparity in value, as the difference between what a lender would be willing to loan a borrower purchasing this property and what the City’s tax assessment is ($166,758).

While it’s possible for my analysis to be wrong, take a look at what the average sales price values are for homes in the 11221 zip code in Brooklyn according to Trulia.com

While real estate brokers continue to list property for sale in this area at an average price of $540,000, sales are yielding far below the asking price at a median average of $405,000.

Add to that the pressure of additional inventory coming to market as a result of the foreclosure crisis hitting neighborhoods like Bedford Stuyvesant and you’ll begin to see that Appraisers aren’t the only ones guilty of inflating property values.

Here are statistics offered by RealtyTrac.com showing as of 8/20/09, the number of properties in the 11221 zip code in some phase of the foreclosure process.

With more than 1,000 properties anticipated to come to market as a result of the foreclosure crisis, real property market values have nowhere to go but down.

(unless the City Council and Mayor begin to consider the merits of the plan proposed by the staff at MyBrooklynReport.com, which we’ll publish here in January 2010)

So, how much do you think you should be paying in property tax to New York City?

The associates at Corley Realty Group will be conducting a Property Tax Clinic in the spring of 2010, which we’ll publish the time, date, location and itinerary for challenging your current tax assessment.

* This post was originally published at http://mybrooklynreport.wordpress.com/2009/08/20/is-nyc-overcharging-you-in-property-taxes/