Tax implications for Brooklyn gut reno and extension
I have a stick built house on a double wide lot in Brooklyn. We are thinking of a gut reno with a 30% extension- basically a box attached to the existing house. The house is a legal 2 family but we are converting it to one family. Don’t know if that will be officially redesignated from a 2 to a 1, but certainly it will be obvious from the drawings submitted. We are planning to keep both Con Ed meters. My main question is the tax implications. This should be a 500k job, but of course it’s common to drastically lower that number in the DOB application. I spoke to a cert attorney I know and he said that the city will increase my tax but minimally. He hasn’t seen the drawings, etc., but I’m looking for other opinions before we file. I’ve heard nightmares about tax increases for 3 and 4 family renovations. I assume that’s because the rent roll could be that much higher after renovations and the city wants a cut of the action..?
lauraatlantern
in About Brooklyn 10 years ago
14
Please log in, in order to post replies!
14 replies
lauraatlantern | 10 years ago
Thanks so much AGAIN qbert & xchx- I just spoke with the certiorari from my previous residence which was a loft Coop in Manhattan. He said, considering the situation with it being a Class 1, (one & two families), that the effective value cap will hold rock solid. He said, worst case scenario, taxes would go up a few thousand the year following completion. The fact that it’s an addition doesn’t matter. Just the construction costs will be added, (and those will be minimal because only HARD construction costs need to be submitted. In other words, if I’m spending X amount on the reno anyway, adding some more to the pot for the addition will be minimally more. In fact, he said I’m going backwards to a 1 family. He also said to change the C of O to the actual usage, which will be for a one family. He said it’s best if everything is consistent. I’m moving enrty/egress anyway, so the C of O needs to be amended. The sprinkler is interesting though. That would be a dealbreaker… Thanks AGAIN FOR YOUR GENEROSITY.
xchx | 10 years ago
Good point from Qbert about the effective market value. What I was trying to say is that if you change from a 4-family to a 3-family or vice versa, your effective market value will now be whatever your new assessed market value is. (That doesn’t necessarily mean your taxes are going up.) That’s why I was saying be careful about changing the number of families.
qbert | 10 years ago
One other note Chamster — you mention planning an extension that adds 30% to your sq footage. Not sure for 1 family houses, but this could trigger the sprinkler requirement (>20% increase). Best to discuss with your architect how to circumvent sprinklers if possible.
lauraatlantern | 10 years ago
Thanks Qbert- That really helps me since you went through a similar process as I might go through. Any other advice would be very appreciated… Thanks again.
qbert | 10 years ago
The “effective market value” determines the property tax, and this is typically much lower than the city’s assessment of your market value due to the cap on increases (no more than 6% a year or 20% over 5 years). For my reno (extension, new C of O), I found that the estimated cost of the project on the DOB filings was more or less added to the effective market value, and this roughly doubled the property tax due. That being said, prior to renovation my effective market value was barely 1/4 the actual value of the house, so the property taxes were abnormally low.
lauraatlantern | 10 years ago
Thanks Everyone, especially XCHX- It’s not that I don’t want to pay taxes, it’s just that going from 5k to 40k would be a disaster. Does anyone know how much taxes go up per 100k spent on reno, for example..? I’m trying to find a way to calculate it approximately… However, the market value stated on my tax receipt is the same as my purchase price, so maybe it won’t go up beyond that…
xchx | 10 years ago
There are two parts to this: 1) Like other people are saying, when you renovate, your taxes will go up, based on the filed cost of the renovations. 2) But also– When you change your use, (number of families) it can mean the finance department reassesses your market value and brings it up to date, which can be a drastic increase. (Your overall taxes are probably really low, because the increases have been capped for many years.) The finance dept keeps track of use separately from DOB though, so I’m not sure if your renovations would trigger this. I know for sure that if you go from a four-family to a three-family, you get re-evaluated, because those are in different tax classes, but since two-family and one-family are in the same tax class, it might not matter. That’s what happened to the Harlem people though.
mario71 | 10 years ago
Please consider that you may want to “radically lower” the cost of your renovation for the filing, but that may not be accepted. In my case, I already had a signed contract with a contractor for a 170K renovation, filed as an Alt1, but the stubborn and incompetent reviewer from the DOB who had already made us jump through hoops in search of approval, and made us waste many months on something that should have taken weeks, was convinced it couldn’t be done for less than 220K. So we had to file using that number, signed contract be damned. So remember: DOB is going to have an arbitrary opinion on everything related to your filing, including the cost.
slopegirl | 10 years ago
My reading of that article was it was the larger properties (4 units and more especially) that were getting hit. That said property tax in NYC is artificially low and renovation offers the city (all of us represented through our government) a chance to rectify that. The reason not to wholesale raise taxes up to what property values have become is this would be unfair to people who have been in their houses for a long time and may not be able to afford higher taxes. Newcomers who buy a house and plan an extensive renovation, it may be argued, do not deserve a tax break.
lauraatlantern | 10 years ago
I don’t want to change it either, but when you’re moving the front door and altering exits and removing 2nd floor kitchens, etc., I don’t think there’s a choice but to change the C of O- or at least the DOB will designate it as a requirement based on the drawings…
daveinbedstuy | 10 years ago
Crazy to change the C of O. Work with your architect and expediter to not do so.
lauraatlantern | 10 years ago
Thank you. Tinkerswagon, I did read that article, but it was unclear to me whether it was the larger family buildings that were getting hit. It just seemed to tell the story but left the reader with no info as to the calculus of the tax increase vis-a-vis the reno costs submitted to the DOB. Also there was nothing re addition and tax consequences. But if you have more info, great! Thanks Arkady, that was our plan.
Arkady | 10 years ago
I have a CofO for 2 but use it as a one. I was advised that the tax I pay might be slightly higher but it was worth it when it came to resale – not that I’m planning to sell.
thetinkerswagon | 10 years ago
there was an article about this in the New York Times about 8 years ago. it was a big spread on people buying brownstones in Harlem and renovating and finding the taxes going up by quite a bit. you may wish to find that article. the city always wants a cut of the action. Steve