New York City’s property tax system for tax class 1 properties—primarily 1-3 family homes—has been the subject of recent analysis by the NYC Comptroller’s Office. A fiscal note released in August 2024 examines the potential impacts of lowering the assessment ratio for tax class 1 properties. We summarize the scenarios modeled by the Comptroller’s Office, focusing on the possible outcomes for homeowners across the city.
Background on Tax Class 1 Assessment Ratios
Tax class 1 properties in New York City are currently assessed at a ratio of 6% of their market value. This ratio, combined with legal caps on assessment increases, determines the property tax burden for these homes. Under existing law, a property’s assessed value cannot increase by more than 6% in any given year or 20% over five years. These caps are designed to protect homeowners from sudden increases in their property taxes, but they also result in differences in how the tax burden is distributed.
The effective tax rate (ETR)—the ratio of the tax paid to the market value of the property—is directly influenced by the assessment ratio. A lower assessment ratio typically results in a lower ETR, meaning that properties with lower assessment ratios pay a smaller percentage of their market value in taxes. This creates variations in the tax burden, with some properties shouldering more than others, depending on their assessment ratio.
Overview of the Comptroller’s Fiscal Note
The fiscal note from the Comptroller’s Office, dated August 16, 2024, explores the potential effects of lowering the tax class 1 assessment ratio. The report examines two scenarios: one where the ratio is reduced to 4% and another where it is lowered to 1.5%. In both cases, the report considers the impact of maintaining revenue neutrality versus allowing the overall tax levy to change.
Scenario 1: Lowering the Assessment Ratio to 4%
In the first scenario, the assessment ratio for tax class 1 properties is lowered to 4%. The Comptroller’s Office modeled outcomes under a revenue-neutral scenario, where the overall tax burden remains the same but is redistributed. In this case, approximately 64.2% of tax class 1 parcels would experience a tax increase, while 30.0% would see a decrease. The overall tax rate would see a small increase, with a shift in the distribution of the tax burden across different property types.
Scenario 2: Lowering the Assessment Ratio to 1.5%
The second scenario explores the effects of lowering the assessment ratio to 1.5%. Here, the results are more pronounced. Under a revenue-neutral model, 30.1% of tax class 1 parcels would face a tax increase, while a significant 66.4% would benefit from a decrease. If the overall tax levy were allowed to decrease, the proportion of parcels experiencing a decrease would rise further. However, the tax rate for tax class 1 properties would more than double, leading to a larger shift in the tax burden.
Key Takeaways
The Comptroller’s report highlights the complexity of property tax policy in New York City. Lowering the assessment ratio for tax class 1 properties could result in a significant redistribution of the tax burden, with varying impacts depending on the scenario and neighborhood. As these scenarios are based on models, actual outcomes could differ depending on a range of factors.
Conclusion
Staying informed about potential changes to property tax policies is important for homeowners and investors alike. As discussions continue and new reports and legislation emerge, it’s crucial to understand how these issues might develop and what they could mean for your property.