Why the NYC Property Tax System Is So Confusing

Former “Crazy Eddie” chief financial officer Sam Antar recently questioned Attorney General Letitia James’ financial disclosures, posting on X that she reported the value of her Brooklyn rental building increased from about $2.4 million in 2021 to $3.4 million 2022 while its assessed value fell by 7.6 percent.

Antar was suggesting she should have paid more taxes — a topic he knows well, having been convicted of a felony for his role in his cousin Eddie Antar’s famously tax-cheating electronics business.

During the SEC’s investigation of that scheme, the CFO changed sides (“because Eddie treated him badly,” according to the author of a book about the saga) and is now a forensic accountant.

But even accountants can be confused by New York City’s property tax system, in which a property’s “market value” and assessed value can move in opposite directions, and neither one in line with the real-world value change.

The latest notice of property value I received from the Department of Finance shows my condo unit’s “market value” decreasing 5.8 percent next fiscal year but its assessed value increasing 8 percent.

I put “market value” in quotes because for certain tax classes it bears no resemblance to the real-world value. The city’s notice makes no attempt to explain why that is, but policy nerds know that for condos and co-ops values are calculated from rents paid for allegedly similar apartments. Yes, even though condos and co-ops are not rental buildings. (Don’t ask.)

My notice says the assessed value of class 2 properties is calculated by multiplying the market value by 45 percent. How, then, can one go up while the other goes down?

The notice offers a vague clue: “Your assessed value is subject to caps which limit how much it can increase each year.”

Still with me? Impressive!

If a property’s market value goes up by a lot, the assessed value does not rise proportionally, because of the cap. Instead, it is kept artificially low. But in future years, the assessed value tries to catch up to where it should have been. That’s why it can go up even when market value doesn’t.

This is one way that property taxes become disconnected from home values — and from common sense. For that and other reasons, the industry-backed group TENNY is suing the city and state to fix the system.

The legal case was a longshot from the start, and numerous setbacks left it on life support until a year ago when the state’s highest court surprised everyone by reviving it.

But while judges have disagreed on the lawsuit’s merits, the plaintiffs are clearly right about one thing: Politicians aren’t going to fix the system on their own. The courts must force them.

Even then, the state might not act. In a more celebrated case, the Campaign for Fiscal Equity won a landmark ruling for education funding that state officials ignored for more than a decade.

Still, let’s assume by some miracle that property taxes were made fair. What would that mean for real estate?

I believe townhomes in gentrified neighborhoods would rise, delivering a one-time hit to their real-world values, while in non-gentrified areas, taxes could fall, giving values a boost.

It’s harder to say what would happen with rental buildings. Today, absent tax breaks like 421a and 485x, taxes on new multifamily would be so high that in much of the city, they could not be profitably built — even if developers got the land for free.

For that problem, no fix is in sight.