First-time homebuyers get lift with new real estate tax law

Real Estate Weekly, Jan 16, 2002 by Erik Effros

Citing the high cost of homeownership in New York as a reason for relocation outside the state, a new law allows local authorities (counties, cities, towns, etc.) to grant partial real estate tax exemptions to first-time home buyers of newly constructed primary residential properties.

The law is not automatic and requires each locality to pass its own legislation, after public hearing, authorizing a partial exemption for taxable years beginning on or after Jan. 1. The maximum duration of the exemption period is five years but may be shortened by the local law. The amount cannot exceed 50% of the home's assessed value in the first year of the exemption and decreases by 10% per year thereafter.

Once the local law is enacted, homeowners must make application through their local assessor's office. Qualifications include purchase price and income eligibility guidelines for low and moderate income housing set by the State of New York Mortgage Agency (SONYMA) for each county through its low interest rate mortgage program.

As to price limits, however, the law provides a ceiling of 15% above SONYMA's standard. The ceiling may be further increased to 25% by localities as enacted under local law but the tax exemption is limited to that portion of the sales price equal to SONYMA's guidelines.

Under the law, household income includes the total combined income of all of the owners and their spouses reported as the adjusted gross income for tax filing purposes. The most recently filed tax return at the time of application for the real property tax exemption is used to determine a homeowner's income.

A "first-time homebuyer" is defined as someone who has never owned his or her own home, including a vacation or investment home, and has not been married to someone who has within the past three (3) years. The home must be owner occupied for the duration of the exemption period and no leasing of any portion of the property is allowed. Otherwise, termination of the exemption will occur.

A "newly constructed" home is one that has never been lived in and has been constructed after Nov. 28, 2001, the effective date of the law. Construction type consists of one and two family homes, townhouses and condominiums. Improvements to existing homes (i.e. other than general maintenance and repair) may qualify for a partial exemption so long as such improvements do not increase the overall assessed value of the home by more than 15% of SONYMA's price limits.

The law applies to taxable years years beginning Jan. 1, 2002 and runs through Dec. 30, 2005, the last day on which partial tax exemptions will be granted. However, an exception is granted to eligible homeowners who have entered into a contract of sale on or before Dec. 30, 2005. These individuals will also receive the benefit of the exemption for its full duration.