DOF Publishes FY 2019 Tentative Property Tax Assessment Roll
On Jan. 17, the NYC Department of Finance (DOF) announced the publication of the tentative property assessment roll for fiscal year 2019. At this time, the DOF sends each owner a Notice of Property Value, which is the tentative assessment for the next fiscal year conveying the market value of the lot, including improvements, the actual assessed value of the lot, and, most important, the value upon which the lot will be taxed for the upcoming fiscal year.
According to the recently released tentative property assessment roll, the tentative values for all New York City properties representing the total market value for the upcoming year is set at about $1.258 trillion, an increase of $108.4 billion, or 9.4 percent from the 2018 fiscal year. About 85.8 percent of the increase reflects market forces, and the rest is indicative of new construction and apportionments.
The roll reflects an increase in citywide construction activity, totaling $13.3 billion in new market value. In particular, rental apartments account for 40.2 percent of citywide construction activity. The trend is most pronounced in Manhattan, where rental apartments account for 35.9 percent of all construction in Manhattan. Strong construction activity for rentals is also evident in Brooklyn and Queens.
“This year’s roll confirms increases in the real estate market and additional construction activity in New York City, which is not just concentrated in Manhattan,” said DOF Commissioner Jacques Jiha in a statement. “We are seeing construction in all of the boroughs, particularly in the Bronx, which has this year’s highest year-over-year percentage increase in construction.”
The release of the tentative assessment roll marks the beginning of the time period in which property owners can examine and challenge their property values before the roll is finalized in May. The assessed values in the final roll, along with the tax rates and any exemptions or abatements, are used to calculate property taxes for the fiscal year that starts on July 1, 2018.
Values for Class 2 Properties
The total market value for Class 2 residential buildings, which include rental apartment buildings, rose $30.1 billion, or 10.7 percent, to $311.6 billion citywide. About 72 percent of this increase, or $21.9 billion, is due to market forces, with the remainder coming from other changes, including new construction and physical improvement. The total assessed value for Class 2 increased 11.5 percent to $90.4 billion.
Class 2 rentals saw a market value increase of 11 percent. Of this increase, new construction and renovations of rentals accounted for $5.3 billion in new market value. For Class 2 rentals, Brooklyn has the greatest increase in market value at 17.5 percent and the greatest increase in assessed value at 22.5 percent.
Values for Class 4 Properties
The total market value for Class 4 commercial properties increased by $22 billion, or 7.4 percent, to $317.9 billion. Market forces accounted for $15.7 billion of the increase, while new construction and other forces accounted for $5.8 billion of the increase. The total assessed value for Class 4 increased 7.9 percent.
For Tax Class 4, Brooklyn has the greatest increase in market value at 10.8 percent, while Bronx has the greatest increase in assessed value at 13.7 percent.
Market values for fiscal year 2019 in Class 2 and 4 are based on calendar year 2016 income and expense data provided by property owners, which are trended to reflect current market conditions, as well as mortgage and bond interest rates, which are used to determine income capitalization rates.
Permitted Valuation Approach
Most NYC commercial property is comprised of Tax Class 2 properties and Class 4 properties. Class 2 consists of buildings with greater than three residential units, and Class 4 properties include non-residential commercial property other than utility buildings. For tax assessment purposes, the market value of each commercial property is determined using the income capitalization approach.
For income-producing commercial properties, the actual income and expenses reported by the owner are used to determine the property’s net operating income. For mixed-use property, each category of income must be separately stated—for example, gross residential income must be separated from gross office income. All income derived from the property must be disclosed.
Similarly, in determining net revenue expenses directly related to the operation of the property that are to be deducted from the gross revenue must be separately stated. Non-operational expenses, such as mortgage interest, depreciation, and corporate income tax, are not considered. Although the entire cost of a capital improvement cannot be deducted in the year of expenditure, a reasonable reserve may be treated as a deduction for one or more years.
After determining net operating income, a capitalization rate (often called the cap rate) is applied. In simple terms, the cap rate is the annual rate of return expected by an investor in the property. The cap rate varies based on the use, condition, and location of a particular commercial property. Arithmetically, the cap rate is the net operating income divided by the market value of a property expressed as a percentage. In many cases, the success of an appeal hinges on the cap rate applicable to the property.
Important Dates and Information for Owners
The NYC real property tax assessment and appeal procedure is calendar driven. With the release of the tentative assessment roll, owners have an opportunity to examine and challenge the values on the roll before the assessment roll is finalized in May. Here are the important dates to consider:
The upcoming NYC tax year begins on July 1, 2018, and runs through June 30, 2019. This is the 2018/2019 tax year.
This year, the absolute deadline for filing a challenge to a property’s assessment for Class 2 and Class 4 properties is March 1, 2018, and owners who don’t file a tax appeal by March 1 lose any right to contest assessments for the ensuing July 1, 2018, through June 30, 2019, tax year. Forms to file a challenge are available on the Tax Commission’s website at www.nyc.gov/html/taxcomm.
Owners who believe that the DOF has incorrect property information, such as the wrong number of units or square footage, may file a Request to Update with the DOF. These forms are posted at www.nyc.gov/finance. The deadline for correcting property errors with DOF this year is April 2 for all property classes. Filing a Request to Update with the DOF, however, is not a substitute for challenging the assessed value with the Tax Commission.
The final assessment roll will include any changes based on the decisions made by the New York City Tax Commission, as well as new information the DOF gathers about abatements, exemptions, and other adjustments. In June, the DOF will use the final roll to generate property tax bills for fiscal year 2019.
The DOF and the Tax Commission will conduct joint outreach sessions in February to answer questions from the public about their property assessments and what to do if recipients believe they aren’t correct. The outreach session schedule is as follows:
Morning Sessions (10 a.m. —12 p.m.)
· Feb. 1, 2018—Manhattan, David N. Dinkins Municipal Building; 1 Centre St., Mezzanine North
· Feb. 6, 2018—Staten Island, Staten Island Borough Hall; 10 Richmond Terrace, Room 125
· Feb. 7, 2018—Bronx, Bronx Borough President’s Office; 851 Grand Concourse, Rotunda
· Feb. 8, 2018—Queens, Queens Borough Hall; 120-55 Queens Blvd., 2nd Fl., Room 213
· Feb. 13, 2018—Brooklyn, Brooklyn Borough Hall; 209 Joralemon St.
Evening Sessions (6 p.m.—8 p.m.)
· Feb. 1, 2018—Manhattan, David N. Dinkins Municipal Building; 1 Centre St., Mezzanine North
· Feb. 15, 2018—Queens, Queens Borough Hall; 120-55 Queens Blvd., 2nd Fl., Room 213
· Feb. 21, 2018—Brooklyn, Brooklyn Borough Hall; 209 Joralemon St.
· Feb. 26, 2018—Bronx, DOF Bronx Business Center; 3030 Third Ave., 2nd Fl.
· Feb. 26, 2018—Staten Island, Staten Island Borough Hall; 10 Richmond Terrace, Room 125
NYC Tax Commission Hearings
Between March and October, the NYC Tax Commission conducts hearings with property owners who have challenged their Tentative Assessments or their representatives to consider whether an assessment should be reduced. At such hearings, information and documentation supporting a property owner’s appeal may be presented. Hearing Officers typically render decisions within weeks of a hearing.
If the property owner accepts a NYC Tax Commission offer to reduce the assessment, the appeals process is concluded, the reduction is effective as of July 1, and the property owner may apply for a refund of any tax overpayment.
If the NYC Tax Commission doesn’t extend an offer to reduce the assessment, or if an owner doesn’t accept the offer and believes that a greater reduction is warranted, the tax appeal for the current year may be continued by filing a petition in New York Supreme Court on or before Oct. 24 within the tax year to which the assessment applies.