The Sweet New York Condo Tax Deal

Image of newspapers on a table

How Long Must This Show Go On?

Homes in New York can have high property tax assessments. By default, home values are assessed at market prices. In contrast, homes classified as condos receive deep discounts when they’re assessed. The result? Some people pay a lot more to cover county, township and school taxes than other people pay — even if they live in homes of similar value.

A free-standing house can be called a condo if the builder has that goal in mind, and many do. New York builders can sell homes for higher prices if they advertise a sweet deal on property taxes. Some of the undertaxed condos are mansions, filled with luxury features, worth a million dollars or more. Why should their buyers pay less in local taxes?  

Builders insist that their condos are rightly entitled to tax breaks. Many condo owners are downsizers, they say — seniors and others who pay high association assessments and fees.

But that’s irrelevant to property taxation, which is meant to maintain the infrastructure of the surrounding township, to provide emergency services, libraries and schools. All property owners support strong school districts; and that, in turn, upholds their property values.

Scene One: The Makings of a Sweet Deal

What was the original point of New York State’s condo statute? The provision, NYS Real Property Tax Law §339y, was enacted in 1964. At that time, the stage was set for New York City apartment buildings to be converted into units for sale. The provision was stimulus for city home ownership, as middle-class buyers were looking for homes with lawns in the suburbs. By keeping the city units bundled, the state meant to protect apartment owners and help the residents of rent-stabilized apartments keep their homes. Unit owners were presented with an option to collaborate and form a condo association, and be taxed as a single property, with an assessment based on rental value, not market value.

The incentive was too broad. To this day, New York State assesses condos and co-ops as though they were rental properties. Given that many apartments are limited by rent control, New York’s property tax structure guarantees strikingly low tax assessments for New York City condos and co-ops. Hence the international appeal of Billionaires’ Row.

Moreover, the provision’s language never restricted its effect to New York City, or defined the types of buildings that could make up a condo association. Soon, people in suburban houses began bunching themselves together to apply for condo status. This tax-savvy trend started in Amherst, where one in ten free-standing houses gets the condo tax break. State lawmakers put the kibosh on that move in 2006 in some places, by establishing a method for local governments to prevent the owners of houses from forming groups and converting into associations.

Next Act: New York Developers Get Tax-Savvy

Realizing that no one had limited new condos from getting the tax deal, builders started forming condo associations. They now sell stand-alone homes in new developments, advertising their lower taxes. Localities lose vast amounts of revenue through this practice — a loss that must be made up by ordinary homeowners. But what can the tax assessors do?

Once a developer establishes a homeowners’ association under state law, and records the condo deed, the worth of a house in the association must be based on a condo’s potential rent value rather than a home’s market value.

The buyers do need to pay association fees to cover waste removal and upkeep for their immediate surroundings. But they’re taxed a much smaller portion of the local budget for streets, parks and trails, schools and libraries. Some of these condo deeds convey luxury homes on multiple acres — with five-figure tax reductions.

Curtains for the Condo Statute?

Image of the outside of a house under construction.

Assessors say most taxpayers don’t notice that other New York homeowners are getting a sweet tax deal. Tom Golisano, the founder of Paychex® Payroll Solutions, is trying to get the word out through a site called Golisano shows precisely how the New York condo assessment formula plays out in an assessor’s calculation. Single home owners are disadvantaged, states the site, as to “how much they pay in property taxes compared to condominium owners.” Is New York listening?

Some lawmakers, with support from the state assessors’ association, have tried to hasten the final act of the New York condo statute. Multiple New York City commissions have also been formed to study and reform the law, in hopes of evening out the tax burden. Hearings planned in the City for March 2020 were derailed by Covid-19.

Yet state action is ultimately necessary to reform this state-level law. And outsized power in New York’s legislature is wielded by lawmakers from wealthy areas where voters like things as they are. Consider the condos in the town of Ossining, in Westchester County, where the Trump National Golf Course properties include condos with a 30% tax discount.

Some New York townships have tried to raise condo assessments to market value by using an amendment to the state property law: the 1983 homestead tax option. If a township opts to tax home and commercial properties differently, its condo assessments could match market value. School districts and villages don’t have to follow suit, though. Towns that have implemented the option found it contentious and unworkable. Because the state hasn’t changed, the option can put its adopters at a comparative disadvantage.

And So the Show Goes On

The point of a property tax is to evaluate every local owner’s fair share of a community budget, and tax people in a way that’s proportional to real estate values. Owners of homes with similar market values should incur similar tax obligations. But New York State has lost the plot.

And as builders create more condo associations up and down the state, their influence grows. The New York State Home Builders Association is formidable. After each parade of talking points from lobbyists, ambitious bills to “close the loophole” invariably fizzle. The local and regional industry associations add their refrains to the score: tax breaks for condos draw retirees to buy some of the pricier housing, and so forth.

From where we’re sitting, it doesn’t look like the curtain’s coming down any time soon.

Supporting References

New York Consolidated Laws: Real Property Law. RPP § 339-y: Separate Taxation; and RPT § 581: Assessment of Residential Cooperative, Condominium and Rental Property (current as of Jan. 1, 2021 per FindLaw).

Habitat Magazine: Pricey Co-ops and Condos Could Be Big Losers in Property Tax Reform (Aug. 3, 2021).

Kriston Capps for Bloomberg CityLab: Can New York’s Next Mayor Fix the City’s Broken Property Tax System? (May 12, 2021).  

The Buffalo News: Builders Defend Tax Law That Gives Condo Owners a Break; Critics Look to Close “Unfair” Loophole (updated Aug. 2, 2021).

Michelle Breidenbach for NY State Gives Condo Owners Millions in Property Tax Breaks; the Rest of Us Pay for It (updated Jan. 30, 2019).

The New York State Department of Taxation and Finance: Homestead Tax Option.

Gerald Benjamin et al., for the Town of Ossining, Westchester County, NY: The Impacts of the Adoption of the Homestead / Non Homestead Property Tax System in Ossining (Feb. 6, 2019).

Photo credits: cottonbro and Pixabay, via Pexels.