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Absentee Landlords: The Taxman Cometh, Mayhap
May 31, 2002

By Henry J. Stern

    Among the slew of tax proposals offered this year by the City Council, the most palatable is the absentee landlord tax.   This would be accomplished by a surcharge on the real estate tax for one, two and three family buildings that are not owner-occupied.

    New York City’s complicated property tax laws divide real estate into four categories.  Class l is small dwellings, from one to three families.  Class 2 is income-producing residential property or four or more units, apartment houses, co-ops and condos.  Class 3 is utility property and Class 4 is commercial property.

    Classes 2 and 4 are supposed to be assessed at 45 per cent of market value.
Class 3 is assessed at 45 per cent of cost, as depreciated.   But Class 1 buildings are assessed at only 8 per cent of market value.  This low assessment is intended to protect homeowners from high taxes.  In fact, city residents pay far lower property taxes than residents of Nassau County with similar homes.

    In recent years, we have seen a substantial increase in the number of homes that are not owner-occupied.  This has gone far beyond a family moving to Florida and renting out its old home in Queens.   Real estate companies and entrepreneurs now purchase small buildings with the intention of dividing them up, often illegally, and renting them out to as many people, often undocumented, as they can cram into the house. At the same time, these operators reap the tax benefits of owning a single-family home.  They pay one-fifth the taxes that owners of comparable residential property pay.  The injustice of this situation is, I trust, apparent to everyone.

    Legislation to remedy this condition has been drafted in the City Council but not yet introduced.  The idea has been floating around for seven years, and Corey Bearak is credited with proposing it.  It may well be that State legislation is required for the city to be able to do this.  In any event, the rubric ‘no new taxes (this year, except cigarettes)’ probably applies here.  There are also issues to be worked out, such as the percentage amount of the surcharge.

    In fairness, not every non-resident landlord is a rogue.   There are perfectly legitimate reasons not to live in a property you own.   And it is better that property be wisely used than lie idle.  But people who do this should pay their fair share of taxes.

    Speculators planning to buy one of these buildings should consider the fact that their real estate taxes are likely to rise next year.   Of course, they can always pass the increase on to their tenants.  And, by the way, wouldn’t it be wonderful if the rents they collect were required to be paid by check or money order, rather than cash.

Henry J. Stern is the director of NYCivic.