If you’re a New York City property owner and you’ve just signed a lease or license agreement to install new telecom equipment (like a cell antenna) on your building, congratulations! You’re adding a new revenue stream. However, before you celebrate that extra income, it’s important to understand how this additional revenue will affect your property taxes. The NYC Department of Finance (“DOF”) will use that additional income to increase the estimated value of your property, which means your property tax bill will go up too.
Here’s an example to illustrate how this works:
The Impact of the Additional Income
Let’s say you own a Tax Class 2 apartment building, and you’ve signed an agreement for a telecom antenna to be installed on your rooftop, generating $40,000 per year in additional income. This extra income must be reported on your Real Property Income and Expense (RPIE) form to the DOF, which uses this information to assess the value of your property for tax purposes.
Because NYC values income-producing properties using the direct capitalization of income method, your property will be valued higher as a result of this additional $40,000 in annual income. While this might sound like a great deal for you, there’s more to consider when you factor in property taxes.
How Does This Affect Your Property Taxes?
For a Tax Class 2 residential building, the property tax on this additional income will be about 45%. That means of the $40,000 you’re earning from the antenna, you’ll owe around $18,000 in additional property taxes, leaving you with a net income of $22,000 — just 55% of the new income.
Why does this happen? In most cases, leases or license agreements for telecom antennas don’t require the telecom company to pay a share of the real estate taxes or tax escalation, meaning you, the property owner, are on the hook for the additional tax liability.
What About Non-Residential Buildings?
The numbers look a bit different if your building falls under Tax Class 4 (non-residential or commercial property). In this case, the property tax on the additional income from the telecom antenna would be about 35%, leaving you with 65% of the new income. So, if your commercial building generates $40,000 per year in antenna income, you’d owe roughly $14,000 in property taxes, netting an extra $26,000.
Why the Difference?
This variation in net income between Tax Class 2 and Tax Class 4 buildings is largely due to differences in tax rates and capitalization rates used by the DOF for valuing residential vs. commercial properties. Residential properties (Tax Class 2) generally face higher tax rates, so a larger portion of the additional income gets eaten up by property taxes compared to commercial properties (Tax Class 4).
Understanding the Bigger Picture
It’s important to keep in mind that all of this comes down to the way DOF values income-producing properties. When your property generates more income, such as from a telecom antenna lease, DOF will assign a higher value to your building under the direct capitalization of income method. As a result, your property tax bill increases proportionally, cutting into the profits you initially expected from the new lease.
While adding a telecom antenna can be a lucrative option for building owners, it’s essential to understand the property tax implications upfront. In many cases, property owners end up netting far less than the total income generated by the new antenna due to the way New York City calculates property values for tax purposes.
If you’re considering signing a new telecom lease or want to better understand how additional income will affect your property taxes, reach out for guidance. The right planning and understanding of NYC’s property tax laws can help you make more informed decisions for your property’s bottom line.