Renovation Impact on Property Tax
Hi all. I’ve been reading up on how renovations can impact one’s property tax, and have been trying to break down how it works from what I can find on nyc.gov. If I’m understanding this correctly:
My “Assessed Value” can not increase more than 6% a year or 20% over 5 years.
If I do any renovation beyond fixing things, that cap is removed and my “Assessed Value” immediately jumps to 6% of my “Market Value”. This second number (6% of market value) is 4-5x my current “Assessed Value”.
So take the example of building a rear deck. As a capital improvement it may only increase my “Market Value” by 2%. However, due to the cap being lifted, my taxes would jump 400-500%.
Is there anything I’m missing here? Besides the fact that I should have bought a house that already had a deck?
KSR
in General Discussion 8 years and 3 months ago
10
Please log in, in order to post replies!
10 replies
jimhillra | 5 years and 11 months ago
@10h, Following up on your post here. Can you confirm and elaborate on this a bit? This is a topic that comes up in almost every renovation we do, and I’ve never heard such a simple, cut and dry explanation. Are you saying that the net change from ANY renovation filed with DOB results in the DOF’s ability to add 6% of the reported reno costs to the assessed value? Are there conditions in which it would be more? Does it matter if Alt 1 or Alt 2?
bzsvsuhcjr | 5 years and 11 months ago
Hi @ksr, I know it’s been a while, but did you find the information from this thread to be accurate? Specifically, that it’s NOT true any renovation (even a small one) lifted the caps and brought your home’s assessed value to 6% of the full market value. And, instead, 6% of the renovation costs are added directly on top of your original assessed value for the year becoming your new basis moving forward.
KSR | 8 years and 3 months ago
Thanks! All of these responses have been extremely helpful.
I’d be doing more than just a deck, I was just using that as a simple example/ hypothetical to try to understand how the system works. I didn’t understand that the increase was linked to the cost of the renovations– I thought any change (even a small one) lifted the caps and brought the assessment to market value. I’m very glad that’s not the case!
I’d be doing a reno on a 2-family (including but not only a deck). I’m hoping the work could be done as an Alt2, but I have some research ahead of me to better understand the distinctions.
That’s a good tip regarding not signing blank permit apps & making sure non-construction costs are not included. I was looking at the permits of a few nearby projects and it seems some architects minimize the stated cost compared to what I’d imagine the actual project budget is.
resident2 | 8 years and 3 months ago
If all you are doing is wanting a deck, you can do that with an Alt 3 so long as you are not extending it 8′ or more from the house and blocking windows underneath, thus changing their legal use. IE a bedroom cannot have a 10′ deck blocking light and air, so you have changed its use by building a deck.
Here are the basic categories of Alterations:
ALT1: Major alterations that will change use, egress or occupancy
ALT2: Multiple types of work, not affecting use, egress or occupancy
ALT3: One type of minor work, not affecting use, egress or occupancy
Alt 1’s trigger major RE Tax changes.
Alt 2’s depending on the number listed on the permit as to the cost of renovations, it can be extreme. Especially if your architects is including the costs of your designer wallpaper, thousands of $ light fixtures etc. Interior decorating is NOT a construction cost.
Alt 3’s are generally minimal RE Tax increase, but again check the # listed on the cost on the permit.
DO NOT SIGN BLANK permit applications.
A few years ago, one used to be able to go and discuss such matters with the tax assessor for the district your property is in and find out how things go in your district. I am not sure if the public can still do this.
xchx | 8 years and 3 months ago
In that article, they are converting an SRO to a multifamily.
xchx | 8 years and 3 months ago
The thing to avoid is a change of use — like 4 family to 2 family. That definitely triggers a reassessment of the whole house and potentially a big jump.
KSR | 8 years and 3 months ago
Thanks everyone. Is there some type of professional/ consultant one could hire to estimate the impact of a renovation on the Assessed Value before going ahead with it? Or to advise as to what type of renovations have a greater impact (for example would sticking to an Alt. 2 help?)
It’s from over 10 years ago, but after reading this article I feel like it makes sense to fully understand the tax implications before proceeding with a renovation to avoid getting into a situation where the house becomes too expensive:
http://www.nytimes.com/2005/02/20/realestate/in-brownstones-taxes-suddenly-rise.html
housepoor | 8 years and 3 months ago
To clarify a bit, I believe the increase in value attributed to the work done is multiplied by 6% (the Assessment Percentage for 1 -3 family houses) and then added to your Assessed Value. That way the increase is not subject to the 6%/20% periodic caps on Assessed Value. So, for example, if your current Assessed Value is $40,000 and you pay about $8,000 in taxes, a $100,000 increase in value will move your Assessed Value up by $6,000 to $46,000. That implies taxes will be about $9,200 (all things being equal). Going forward the $46,000 will be subject to the 6%/20% periodic caps.
xchx | 8 years and 3 months ago
Not 100% on this but…
I think what happens is the value of the renovations is added to the assessed value.
It’s not that the assessed value immediately jumps to match the market value.
But since the assessed values are so low, even a relatively cheap renovation can increase them by a lot.
housepoor | 8 years and 3 months ago
My experience was that all of the increase in value (i.e. the change derived from the work done) will hit your Assessed Value at once. The trick is how much the tax people conclude the work has increased your value. The cost used when filing the permit is important (hence you see people trying to push that number down), but it isn’t a guarantee. If you do a lot of work, taxes can go up 50% or even double, but 5-6x is doubtful.
Go identify a couple houses that were gut renovated in your neighborhood, look in the DOB records to see if permits were pulled, and then track the subsequent tax history. The tax adjustment process isn’t always instantaneous. Having said that, I recall reading that the DOF sometimes does not wait — they look at permits and can adjust simply based on the scope of work in the permit. Good luck!