All New York City real estate is subject to annual valuation. As outlined in our post on Assessment Basics, a property’s assessed value is determined by applying the assessment ratio to the property’s market value – finance’s estimate of your property’s worth. The assessment ratio for Tax Class One (1) properties is 6%, while the assessment ratio for tax class two (2), three (3) and four (4) buildings is 45%. New York State law places a limit on how much assessed value can increase in a given year, or over the course of several years, for some tax classes. Below is an overview of the tax classes to which this restriction applies and the respective caps on their assessed values.
Tax Class One (1) & Tax Class Two (2) Small Buildings
Per New York Real Property Tax Law Section 1805, tax class one (1) properties are subject to an assessment cap of 6%. Specifically, the law states that an assessor of any special assessing unit “shall not increase the assessed value of any tax class 1 property” in a single year by more than 6% of the previous year’s assessed value, as listed on the assessment roll. Additionally, the assessor may not increase the tax class one (1) property’s assessed value by more than 20% within any five-year period. For example, if a property’s assessed value in the previous year was $100,000, the following year’s assessment may not be more than $106,000, and in five years cannot be more than $120,000.
Tax class two (2) properties designated under the subclass categories of 2A, 2B or 2C (smaller tax class two (2) properties, with ten (10) units or fewer) are also subject to a beneficial assessment cap of no more than 8% of an increase in assessed value within a single year, and no more than 30% of an increase in assessed value within a five-year period. For example, if a property’s assessed value in the previous year was $100,000, the following year’s assessment may not be more than $108,000, and in five years cannot be more than $130,000.
Limitations and Restrictions on Assessment Caps: Note that the assessment cap does not apply to increases in assessed value due to physical alterations or the expiration of any tax exemptions or abatements.
Transitional Assessed Values for Tax Class Two (2) Large Buildings & Tax Class Four (4)
Larger tax class two (2) properties (with more than ten (10) units), along with tax class four (4) properties are not subject to any assessment caps; however, they benefit by the transitional assessment system. This allows any increases or decreases in assessed value to be phased in gradually over five years. Specifically, 20% of the change in assessment value is applied each year for five years. Given this method, there could be multiple transitions applied to a property in any given year, resulting in an actual assessed value that is different from the transitional assessed value. Finance’s policy is to apply the lower of the two assessment values in order to derive the total taxes due. Any physical changes or improvements made to the property are not applicable to the transitional model; the full value of the improvements or changes is taken into account when generating the assessed value.