Real Estate Watch: Taxes, Taxes and More Taxes...Maybe

The government knows that improving the real estate market is a big step toward improving the economy. As part of their action plan, officials had implemented the First-time Homebuyer Tax Credit, which just expired at the end of April.

National statistics released on June 22 by the National Association of Realtors reports that existing home sales dipped 2.2 percent last month to a seasonally adjusted annual rate of 5.66 million units, down from the upwardly revised rate of 5.79 million in April. Sales year-over-year were up 19.2 percent.

This year, Scarsdale is facing an onslaught of "tax cert" complaints from residents who have applied for re-assessments to lower their property taxes. In 2004-05, submissions were in the 200s. In 2010, the town received a record 756 applications.

No wonder the village tax assessor looks a little "overwhelmed."

There has been talk about re-assessing properties in the entire community so that this bombardment of applications can be avoided in the future. Don't panic though! What are the chances this will really happen?

Again, real estate is a big industry that helps to direct where the economy goes. It's a large piece in a complicated puzzle.

Scarsdale, unlike many other communities, does not have any requirements for filing a tax grievance. Anyone can file, no matter how much it could save them- $5 or $5,000. The town must spend money on each application to litigate and research. It becomes expensive.

Many Scarsdale applicants from 2009 are still waiting to find out if they have been approved for a tax grievance. Out of all the applications that have been looked at so far, around 90 percent have been approved for reductions.

The school district will continue to spend the same on every pupil, even though, technically, it is getting less money now. The village will still have expenditures and a budget. But Scarsdale will be out all that money from the people whose applications were approved for a tax reduction.

So what will happen?

Scarsdale will have to raise taxes to make up for the deficit.

If that is not enough, on top of all this, the state of New York is seriously considering raising its own real estate taxes. In addition, officials are looking to increase the mortgage recording tax by a half percent.

Residents, buyers and realtors alike are outraged.

 How will the real estate market continue to improve if taxes are constantly increasing?

By the way, for those of you who might not be aware, New York State has taxes that are 35 percent higher than the national average. In addition, Westchester County has the highest property tax rates in the nation.

The New York State Association of Realtors is looking at this move by New York State as a serious threat to the real estate market and is waging a war against it. It has begun to take out full-page advertisements in local newspapers warning residents and readers about this move.

New York State is facing an unprecedented $9.5 billion shortfall for the fiscal year, which began April 1. There have been several proposals floated in Albany to increase the mortgage recording tax to help address this budget crisis. NYSAR and its members have been actively opposing these proposed tax increases, and are taking that message to the mainstream media in order to make it very clear to New York lawmakers that voters remain opposed to any further real estate related tax burdens.

New York's budget deficit is not the result of too few taxes. But sellers, buyers and realtors will pay the price for bad spending.

There's no doubt about it, an increase in New York State taxes, in addition to higher taxes by Scarsdale, will have an unimaginable impact on the real estate market.

New York's housing market remains in a state of recovery, with housing figures reflecting losses in values and numbers of transactions. There continues to be tremendous uncertainty in marketplace--especially since the federal Homebuyer Tax Credit expired, foreclosure rates continue to climb across that state and most economists believe interest rates will soon rise.

New York is the only state in the country with a mortgage recording tax, and it has the highest closing costs in the nation.

The mortgage recording tax is a regressive tax, it has no impact on cash buyers. Further increases in the tax will act as a detriment to attract business and commercial real estate activity to the area.

Additionally, Scarsdale is considering adding its own little "fee" to the Mortgage Recording Tax for the Open Space Fund, which aims at obtaining parcels of wetlands which are privately owned but not suitable for development. According to Mayor Carolyn Stevens, "If the Village raised the mortgage tax by as little as half a percent, that money could be used to acquire parcels of land and keep them green."

How important is it to Scarsdale residents for the town to be able to purchase a piece of land that floods easily? "On top of everything else, that's all we need. It's already hard enough to sell a house as it is," said Jim, a Scarsdale homeowner.

It is fiscally dangerous to rely on such unstable revenue sources such as mortgage recording taxes. Shortfalls from projected real estate transaction taxes are placing municipalities throughout the state in crisis mode. For example, New York City collected $1.7 billion in real estate transaction taxes in 2007; meanwhile, the projected revenue for these same taxes is $581 million in 2010. Many county governments are in the same predicament.

The potential negative impact of a statewide and local increase to the mortgage recording tax does not end just with the impact on home sales. Because of the tendency of homebuyers to purchase additional goods and services such as furniture, appliances and home improvements, the housing industry has a ripple effect on others as well. According to the Joint Center for Housing Studies at Harvard University, a typical first‐time homebuyer spends an additional $3,500 on household goods and services in the year following a home purchase. Trade‐up buyers spend even more – $5,000 – following the move to a new home. The loss of these expenditures due to fewer home purchases would result in a direct negative impact on our already fragile economy.

The STAR exemption is also up in front of New York State for reconstruction. The Executive Budget proposes to restructure the New York City Personal Income Tax STAR exemption by limiting the tax rate reduction benefit to the first $250,000.

Further, the Executive budget calls for the elimination of STAR eligibility for any homes valued at $1.5 million or more, which would have a direct effect on many homes in Scarsdale and Edgemont.

Given our current economic situation, reducing or eliminating this one tax benefit enjoyed by New Yorkers will only further discourage home sales and ultimately lead to less tax revenue for all government coffers.

Wondering what you could do to help? Well, the squeaky wheel gets the oil. If you have not already done so, click on the link below to access the TAKE ACTION site, and send an email to Governor David Paterson and the State Legislators to let them know that increasing the Mortgage Recording Tax is not the way to solve New York's fiscal crisis.

http://takeaction.realtoractioncenter.com/campaign/statewideMRT?rk=Y1LlIcSahw2zE

Rose Marinaccio is a Scarsdale resident and the Office Manager of Engel & Voelkers Real Estate. She can be reached at Rose.Marinaccio@engelvoelkers.com