The absurd math of New York property taxes

Published March 13, 2026

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New York City has a reverse tax bracket. An effective rate is the annual property-tax bill divided by the home’s value. In the Commission’s FY2021 data, lower-value homes often carried the higher rate. The more expensive the property, the more the system bends over backward to understate its value and shrink its tax bill.

Compare the annual tax per $100,000 of home value on one consistent scale. Select a group to read its figures.

This has been sitting in plain sight for years. The Furman Center documented the undertaxation of the city's most valuable properties in 2013. In 2016, SITU turned Section 581 into a visual indictment. The evidence kept piling up while the policy stayed in place.

The status quo is already progressive in reverse: ordinary renters and middle-value owners subsidize lower effective rates on luxury property. The fix has four parts: value homes from real market prices; get Albany to end Section 581's rental valuation rule (the state rule that forces condos and co-ops to be valued like rental buildings rather than what buyers actually pay); protect people living in their own homes by exempting part of their home’s value and reducing bills that consume too much of their income; then put the highest rates at the luxury tail.

A reverse bracket in the tax code

New York already has a progressive property tax. It is just progressive in the wrong direction.

The reverse bracket

The Commission's Fiscal Year 2021 model for primary resident owners is blunt. Parcels under $100,000 carry a median effective tax rate of 1.47 percent. Parcels above $10 million carry 0.46 percent. For Class 1 properties, mostly one- to three-family homes, the pattern is similar: properties under $150,000 sit at 1.26 percent, while homes above $10 million sit at 0.51 percent. That is the reverse bracket in numbers.

What Section 581 actually does

Section 581(1)(a) of New York’s Real Property Tax Law limits the assessment of qualifying condos and co-ops to what the property would be assessed at without that form of ownership. In New York City, most condos and co-ops are in Class 2, the tax category for apartment buildings. The city values them as rental properties instead of simply using what buyers pay for the apartments.

The Department of Finance estimates what similar rental buildings could earn, subtracts operating expenses, and uses the remaining rental income to estimate a building value. That is the income-based method described by the city. A luxury apartment’s sale price can be far above the value produced by that calculation. “Market value” on the tax notice can therefore mean something very different from the price an owner could sell for.

That valuation comes before the rest of the tax calculation. The assessed value is the portion used to calculate tax, subject to other rules and relief. A valuation gap is not itself the tax rate. The comparison below shows how much sales-based value the city’s valuation reflected in the Commission’s FY2021 data.

The Commission found that the median Department of Finance value captures 53 percent of sales-based market value for condos under $100,000, but only 12 percent for condos above $10 million. The median condo over $10 million pays a 0.50 percent effective tax rate. A condo in the $750,000 to $1 million band pays 0.84 percent. The Comptroller shows the same distortion with a concrete example: a $34.4 million condo taxed at 0.39 percent today would pay 0.94 percent under sales-based valuation.

Each full bar represents $100 of sales-based condo value. The colored part shows the city’s valuation for tax purposes, not the tax bill.

Rent is in the tax bill

The renter argument is straightforward. Using yearly tax divided by the Commission’s estimate of what the properties could sell for, large rental buildings carry a median effective tax rate of 1.53 percent. That is far above 1-3 family homes at 0.83 percent, condos at 0.74 percent, and co-ops at 0.93 percent.

The city spent years patching around this with tax reductions like 421-a because the underlying structure punished rental housing. A lower tax bill reduces a landlord’s costs. How much reaches tenants depends on rent rules, competition and the housing supply; a tax cut alone does not guarantee a matching rent cut.

What is proposed, and why it still stops short

The proposal on the table mostly cleans up the machinery. Put 1-3 family homes, condos, co-ops, and small rentals in one residential class. Use sales-based market value. Stop taxing different property types on different fractions of their estimated value. Replace limits on annual assessment growth with changes spread over five years. Then add two owner protections: a homestead exemption, which excludes part of a primary home’s value from tax, and a circuit breaker, which reduces the bill when property tax takes more than a set share of household income.

In the Commission’s model, the valuation and class changes alone produce a 0.814 percent effective rate before homeowner relief. Under the Commission's graduated homestead model plus the circuit breaker, the median primary-resident property under $100,000 falls from 1.47 percent to 0.35 percent, the $750,000 to $1 million band falls from 0.83 percent to 0.67 percent, and the $10 million-plus tier rises from 0.46 percent to 0.96 percent. Only primary-resident parcels above $2.5 million end up with a higher median rate than today.

That is better than the current system, but it is still more defensive than it should be. It cleans up a broken assessment regime and adds relief for owner-occupants. What it still does not do is state the obvious principle in plain language: high-value luxury property should face the highest effective rates on purpose. New York should have had that structure many years ago instead of hiding behind fake valuations, caps, abatements, and class boundaries.

At this point the usual objections arrive: capital flight, tax-burdened long-time owners, rents going up. The official models and the best migration evidence run the other way.

What Changes

Middle-value owners stop subsidizing luxury property. Reducing rental-building taxes would lower owners’ costs; rent reductions would still depend on the housing market and rent rules.

The usual objections

Wealth flight is the weakest one. Cristobal Young and Charles Varner found that New Jersey's millionaire tax produced a loss of less than one-tenth of 1 percent of the stock of millionaires. Young and Ithai Lurie later found similarly small migration effects in IRS data. And real estate still cannot leave town.

The other objection is the gentrifying homeowner. That is what the owner protections are for. The homestead exemption is limited to primary residents and phases out for high incomes. The circuit breaker reduces taxes for owners whose bill exceeds 10 percent of income. Reform is not supposed to treat paper appreciation as cash flow.

The honest version of the debate is simpler than the terminology makes it sound. The current system hides a luxury subsidy inside the tax bills of ordinary owners and the rent bills of ordinary tenants. Start with real market valuation. Get Albany to end Section 581. Protect primary residents. Then make the top of the schedule explicitly progressive instead of hiding regressivity behind bad math.