Every week, Mansion Global poses a tax question to real estate tax attorneys. Here is this week’s question.
Q: My New York City co-op building is expanding to include new floors. Will the building’s taxes stay the same, and my maintenance costs stay the same, too?
“Real estate taxes will unquestionably increase” when floors with new apartments are created, either through new construction or renovation, said Jeffrey Golkin, founding partner of Law Offices of Jeffrey Golkin Partners in New York City.
“If the co-op’s real estate taxes increase, then the shareholder’s maintenance will likely also increase,” said Neil B. Garfinkel, partner at Abrams Garfinkel Margolis Bergson, a New York City law firm.
Typically, a co-op creates a budget each year and the real estate property taxes are part of that budget, he said. “The increase in the budget because of the increase in the co-op’s real estate taxes will result in an increase in the maintenance for each shareholder.”
The renovation of existing apartments or the addition of floors and apartments will affect all shareholders, not just those occupying the new or renovated space, Mr. Golkin pointed out. But many co-op boards are unaware of that, he said.
Another point of interest is that “buildings with fewer than 11 units are valued differently than those with more,” Mr. Garfinkel noted. “If the additional floors pushes the building past the 11-unit threshold, the property taxes will also likely increase for that reason,” he said.
“The difference could be significant because increases on the assessed value of buildings with 10 units or fewer are capped,” said Vincent D’Aquila, an associate at Abrams Garfinkel Margolis Bergson. According to the NYC Department of Finance Class 2 Property Tax Guide, which applies to co-ops of four or more units, “it cannot go up more than 8% from the year before or 30% over five years. Therefore, your assessed value will be whichever is lower: 45% of your market value or the capped amount…. Physical changes to your property are not capped the same way. They are applied in full to your market value, and then generally assessed at 15% of the increase.”
Changes in the assessed value of properties with 11 or more units are usually phased in over time, Mr. Garfinkel said. But if a physical change is made to the property, the full value of the improvement will affect the valuation that year, he said.
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