Some new condominium buyers in the city are picking up homes with highly optimistic monthly tax estimates. But when the tax man cometh he often wants a lot more money than what was estimated.
The tax projections in Schedule A of a new condo’s offering plan, in some cases, don’t consider strong residential growth and increasing property prices in a certain neighborhood, the New York Times reported.
While it’s not clear how many buyers have this experience, the newspaper pointed to a couple who purchased a $2.1 million penthouse on Atlantic Avenue in Boerum Hill. Both the StreetEasy listing and the offering plan estimated the monthly taxes would be $223. But two years later, they are paying around $1,500 a month, even after the 421a tax abatement that cuts their taxes by a third.
The issue is that the attorneys and consultants who figure out what the city will tax the unit in the first year the building is in operation are making the predictions well before the condo actually opens. Because it’s assessed while it’s under construction, and a neighborhood can see major changes in that time frame, the taxes can often go up significantly. Additionally, the offering plan only predicts the first year of the building.
“No one can 100 percent predict what the Department of Finance is going to do and the sponsor doesn’t make any guarantees,” Pierre Debbas, a Manhattan real estate lawyer, told the newspaper, adding that estimates are largely correctly. “But every now and then there’s an outlier that could be off.”
In a small condo with 10 units or fewer, tax increases are limited up to 8 percent a year or 30 percent over five years. But larger condos have no limits.
And, according to real estate tax lawyer Paul Korngold, brokers who want to sell the units “want to show low taxes,” so they typically just work off the Schedule A. Often they don’t share the tax opinion letter from the offering plan, which offers a more complete picture of the tax assessment, with prospective buyers
Earlier this year, The Real Deal examined the how each of the boroughs have changed in market value over the last year, according to the Department of Finance’s annual property tax assessment. [NYT] — Miriam Hall