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One- to Three-Family Houses: Taxes on Small Homes

Posted on 8th Mar 2016

The New York City Department of Finance assesses properties each year based on four categories. Small homes are Class 1 properties that have traditionally served as owner-occupied housing: single family homes, two-family homes, or those that have up to three units. Protections are in place to minimize the impact of increasing market values on the owners of these one- to three-unit residential properties. State law limits how much the assessed value of a Class 1 property can go up each year, and owners who don't believe their assessments represent a true reflection of their property's value may challenge the valuation. 

Exemptions and Abatements

Owners can apply for exemptions and abatements to reduce their tax liability. Exemptions reduce assessed values before taxes are calculated, whereas abatements reduce taxes by applying credits to the amount of taxes owed. Owners who are 65 years or older in the year they apply are eligible for the Senior Citizen Homeowner's Exemption if their annual incomes are less than $37,399. The New York State School Tax Relief Program provides a partial exemption from school property taxes. The Basic STAR is available to owners who earn less than $500,000 per year. This benefit provides approximately a $300 reduction in their annual taxes. The Enhanced STAR is available to senior citizens who earn less than $84,550 in annual income. They’re eligible for a tax reduction of $600 annually. 

These exemptions protect those who are on fixed incomes, particularly seniors, and can help prevent them from falling into arrears and facing foreclosure.

Recent Critiques of the Class 1 Property Categorization

The New York State Assembly periodically holds hearings on the real property tax system, including New York City's. Some urban policy analysts argue that the Class 1 system grants unfair benefits to these homeowners in the form of the caps that insulate them from increasing market values. But there may be specific policy rationales for the distinction. One- to three-family homes are less likely to be owned by investors. Families are more likely to live in these homes over the long term, and owners are more likely to rely on fixed incomes as they age.  

In an interesting recent development, housing advocates filed suit in Robinson v. City of New York, arguing that Class 1 homeowners have benefitted from housing discrimination because renters pay more in residential taxes when their landlords' properties are categorized as Class 2 properties. The case was dismissed, however, because the tenants could not demonstrate that they experienced any particular injury. They did not pay their landlords' taxes and could not demonstrate that their taxes would have been lower under a different tax scheme. They could not prove that the tax system discriminated against them in particular. Notwithstanding this decision, there is no indication that the legislature is interested in increasing the tax liabilities placed upon the owners of one- to three-family homes.