Property Tax Implication of Gut Renovation

Can anyone speak generally to how property taxes change with renovations. Am looking around and have seen both a (near) shell and a then also some habitable but gut reno locations with low taxes. How should one think about potential changes to taxes when significant upgrades and improvements In a couple of the cases we are looking at 50-75%+ of the purchase price of the home could be spent again in renovation. Just an addition…would configure as 2 family with basement unit and either a duplex or triplex on top (depending on # of floors). Thanks in advance

pcvhaiti

in Taxes 12 years and 11 months ago

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brooklynexpediter | 12 years and 11 months ago

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DOB notifies the finance dept. of every permit and therefore the finance dept. may reassess the proerty which usually happens only when a change of C. of O. is filed. Best bet would be to speak to a real estate tax professional that do exemptions (J51, 421A) as they work with the assessors as well.

masterbuilder | 12 years and 11 months ago

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Generally speaking, as I am a contractor not a real estate accountant: A cost affidavit is required filing with the DOB. As far as tax goes, most of my projects require filing certificates of capital improvement. Basic repair work or cosmetic work requires collection of sales tax. There is somewhat of a fine line between the two, which is covered in detail in this publication: http://www.tax.ny.gov/pdf/publications/sales/pub862_401.pdf Apparently there is an exemption allowance of increased property value which depreciates over time: http://www.orps.state.ny.us/ref/forms/pdf/rp421fin.pdf I think if you review these, they will provide with you with a decent guide for what constitutes simple repair versus what constitutes an alteration, which would have to be filed with the DOB. And also give you some talking points with your accountant and other professionals assisting you. Also, why not reach out to the city assessor?

callalily | 12 years and 11 months ago

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We did a whole house electrical upgrade, which was filed, and other renovations that did not require filing (floor refinishing, skimcoating), and our taxes didn’t change. My point is that if you upgrade mechanicals and re-do kitchens and baths without moving walls or fixtures, you might not need to file and taxes won’t be affected. But if you’re changing CofO or flipping locations of units, of course you need to file.

vinca | 12 years and 11 months ago

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Seek a pre-purchase analysis from someone with a practice in tax certiorari. Current and future tax class, square footage, cost of renovation, change of CO, and even timing of purchase can affect outcome in both short- and long-term.

housepoor | 12 years and 11 months ago

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The best article I’ve seen on this was in the New York Times in 2005\. Its not good. If you can’t see the article, just Google “In Brownstones, Taxes Suddenly Rise”. I’d love to hear about any strategies to minimize the impact. http://www.nytimes.com/2005/02/20/realestate/20cov.html?pagewanted=print&position=

Netherland | 12 years and 11 months ago

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The impact of our renovation was that the value of the renovation on the DOB application (for your work permit etc) was doubled to approximate the increase in “market value” to the home. The new taxes were then based on this new value. Not sure how familiar you are with the formula for real estate taxes, and I’m not expert either, but my understanding is that they are based on a percentage of an estimated “market value” on which you have to pay tax. So say your tax “market value” is currently $100k and your application to the DOB has $100k on it, you might see your tax triple (the 6% max increase does not apply because you changed the house). You can appeal the increase in market value, but if you do the finance department might come “inspect” your home (and little good will come of that I assume). If you do a CofO change, this might affect the tax as well (I think 2 families have a slightly lower tax than 3 and above, which are considered multi-family). I’m sure there are better informed people who can add to this…