An expired tax break for condo and co-op apartment owners disproportionately benefits Manhattan residents, especially those living in tony neighborhoods just off Central Park, an Independent Budget Office analysis reveals.
About 60% of the tax break, which was enacted in 1997 to equalize tax burdens between apartment dwellers and homeowners, flows to Manhattan residents, the IBO found.
State lawmakers have introduced a bill to amend the program to better equalize tax burdens for all apartment owners. But the current bill in Albany “still misses the mark,” the IBO argues.
The $444 million tax break for an estimated 364,000 condominium and co-op owners expired last June. But last month, the city said that it will continue to issue tax bills that reflect the break in the hopes that the state Legislature will vote to reauthorize it in early 2013. If the Legislature fails to act, condo and co-op owners could face higher tax bills and the city could get an unexpected revenue boost. Gov. Andrew Cuomo and city and state leaders have expressed support for renewing the tax break.
But simply renewing the tax break may not be the best course of action, the IBO argues. Under one proposal introduced last June, the tax abatement would stay unchanged for 2013 but then be modified gradually beginning in 2014. One change would limit eligibility for the tax break to owner-occupied apartments. Another would amend the share of taxes abated based on assessed value.
The IBO estimates that limiting the tax break to owner occupants would cut the cost of the program to the city “roughly in half” compared with simply extending the program without any changes. Approximately half of those currently receiving the break would no longer be eligible.
About two-thirds of the owners still eligible for the tax break would see larger abatements through the creation of four different categories of apartment owners. In dollar terms, owners of units with assessed values below $15,000 would see savings averaging over $400, owners of $15,000 to $50,000 units would see average savings of over $800, and owners of apartments valued above $60,000 would continue to see savings averaging about $2,200. (Assessed values are substantially lower than market values.)
But overall, the proposed changes would do little to reduce the inequality in the abatement program.
“To limit the excess in the tax break, which provides many apartment owners with effective tax rates below that of homeowners, legislation would need to address the differences in assessment practices between apartment buildings and private homes that are at the root of the disparity in tax burdens,” the watchdog agency states. (Condo and co-op apartments, unlike houses, are assessed based on what they would rent for, not what they would sell for.)
The uncertainty surrounding the expired tax break has stoked confusion in the city, where real estate lawyers and property owners fear a 20% hike in their tax bills if the Legislature doesn’t restore the abatement program.
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