Life’s Two Sure Things: Death and NYC Property Tax Increases
Over the past ten years, property taxes in the New York City have gone up three times as faster than household incomes. These drastic increases are affecting every income group, from the wealthy to the poor, and it's low-income households that are getting hit hardest by higher property taxes. According to the New York City Comptroller’s Office, from 2005 through 2015 the percentage of household income going to property taxes has almost doubled, increasing from 6.6% to a whopping 12.7%. According to the New York City Department of Finance, property taxes are the single largest source of revenue for the city. In 2016 they brought in over $26 billion to city coffers. No wonder they keep going up.
An Array of Additional Real Estate Taxes to Ruin Your Day
It's not just property taxes, with their ever-increasing rates, hitting property owners in New York City. City officials have come up with an array of additional real estate related taxes to suck every possible dollar out of a property owner's pockets. The lyrics to the 1960’s Beatles song “Taxman” nicely captures how tax officials approach real estate taxes in the Big Apple:
If you drive a car, I’ll tax the street
If you try to sit, I will tax the seat
If you get too cold, I’ll tax the heat
If you talk a walk, I’ll tax your feet…
It seems to many that the tax authorities slap a tax on anything remotely relating to real estate. Here's a rundown of NYC's major real estate related taxes:
With real estate prices rising ever higher in the past decade the so-called Mansion Tax is no longer just for mansions. It’s a 1% tax on any condo, co-op or house sold in New York City that went for $1 million or more. If the sale was for $999,999 no tax is applied; however, if the price hits $1 million, the buyer will pay a $10,000 Mansion Tax. According to a recent study, the average price per square foot in Manhattan in 2018 was $1,773 meaning that a $1 million will only buy you a roughly 550 square foot studio apartment- hardly a mansion by any definition. And with prices rising in Brooklyn and Queens in recent years the only remaining boroughs in NYC where a million bucks could get you a mansion are Staten Island and the Bronx.
Mortgage Recording Tax aka Mortgage Tax
The mortgage recording tax is yet another way for the government to pick your pocket. Most people have to get a mortgage to buy their home. Few pay all cash. Consequently, the vast majority of New York City real estate buyers will be hit up for an additional 2.175% City Mortgage Tax. New York State takes a bite of this apple as well as they apply a 0.5% mortgage tax to new purchases. You'll even have to pay the mortgage tax if you refinance unless you opt for a CEMA loan.
Strictly speaking this is not a real estate tax; however, it does impact property owners who wish to use their residence to generate incremental income. The city has found a way to create more tax revenue by taxing real estate owners and renters who rent a room or an entire apartment to tourists. And it’s not just a single tax either, but two. A property owner will be required to hand over a 5.875% Hotel Room Occupancy Tax to the City. New York State takes its pound of flesh by charging a Hotel Unit Fee (a.k.a. tax) for every day a tourist stays overnight. If that weren’t enough, both the City and State apply a combined sales tax of 8.875%.
If the government hasn’t already rung you dry, your co-op or condo board certainly might. They often apply a flip tax, also called a transfer fee (especially in the case of condos), when a unit is sold. The amount differs from building to building and is far more common in co-ops. In lieu of a flip tax or transfer fee, which is typically paid by the seller, many condos (and some co-ops) may charge the buyer a capital contribution fee.
Other Real Estate Related Taxes Pending Approval
There are several pending real estate related taxes being queued up to take even more money from property owners. These include:
City officials have come up with a new way of taxing residential real estate owners. The “Pied-a-Terre Tax” would levy an annual tax on co-op and apartment owners who only occasionally use their New York City apartment. In other words, if that unit is not your primary residence, you will be required to pay a tax. This tax would be applied on a sliding scale ranging up to 4% a year and would be levied on properties that sold for $5 million or more. Never one to miss a taxable opportunity, the New York City tax man would also apply a one-time tax of $370,000 for those who have to pay the Pied-a-Terre Tax. A tax on a tax, if you will.
Higher Mansion Tax
Mayor Bill de Blasio has been trying for years to increase the Mansion Tax. His most recent attempt in 2017 would have raised the Mansion Tax to 2.5% of the sale price on properties that sold for $2 million and above. So far this proposed new tax has gone nowhere.
New Federal Tax Law That Was Supposed to Lower Taxes Raised Them Instead
As if New York City and State real estate taxes weren’t bad enough the Trump administration has made them even more painful in recent years with the introduction of new federal tax laws. Proponents of these new tax reforms claimed it would act to lower taxes, and in some cases it has, but not for New York City property owners. The new law now limits state and local tax deductions to $10,000, hitting almost every NYC real estate owner big time.