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Department of Taxation and Finance

Volume 11 - Opinions of Counsel SBRPS No. 22

Opinions of Counsel index

First-time homebuyers of newly constructed homes exemption (purchase price limitation) (local option) - Real Property Tax Law, § 457:

For purposes of the first-time homebuyers of newly constructed homes exemption, whether a municipality chooses to utilize the locally applicable SONYMA purchase price cap or to increase it, the exemption may be granted only so long as the sales price of the property does not exceed such cap by more than 15 percent.

We have received an inquiry regarding the partial exemption for first-time homebuyers of newly constructed homes (Real Property Tax Law, § 457, as added by L.2001, c.529). The question is as to the purchase price limit on newly constructed residential property.

Section 457 authorizes municipalities to offer a partial exemption for newly constructed homes purchased by first-time homebuyers. As of this writing, the exemption applies only to homes purchased or contracted for before December 31, 2005 (RPTL, § 457(5)). [Ed. note: That deadline has been extended to December 31, 2010 (L.2005, c.657).]

Where it is adopted, the exemption lasts for a maximum term of five years, beginning at 50 percent of the value of the improvement in the first year and declining to 10 percent in the fifth and final year, but a municipality that opts to grant the exemption may choose to grant it for a shorter term (RPTL, § 457(1)).

The exemption is also available for certain improvements made to existing homes. Any increase in assessed value due to the renovation or remodeling is eligible for the exemption, so long as the refurbishing costs exceed $3,000 and the contract for the work is executed within 90 days from the date of purchase (RPTL, § 457(2)(b)).

Eligibility for the exemption also depends, in part, on the purchase price of the home and the income of the homebuyer(s). As to purchase price, newly constructed primary residential property is eligible for exemption if it is “within the purchase price limits as defined on [January 1, 2001] by the state of New York mortgage agency [SONYMA] low interest rate mortgage program in the non-target, one-family new category for the county where such property is located . . .” (RPTL, § 457(2)(a)). The SONYMA income and purchase price limits, which became effective April 26, 1999, control for purposes of section 457. {1}  In over half of the State’'s counties, the purchase price limit is $138,900. {2}

Municipalities opting to grant the exemption may also opt to increase the locally applicable purchase price cap by up to 25 percent (RPTL, § 457(4)). In those counties referred to in the immediately preceding paragraph, therefore, municipalities may establish a purchase price cap as high as $173,625 ($138,900 x 125%).

Whether a municipality chooses to utilize the applicable SONYMA cap or to increase it, the exemption may be granted only so long as the sales price of the property does not exceed such cap by more than 15 percent; however, the exemption base is still limited to the chosen cap (RPTL, § 457(3)). So, for example, if a municipality in a county with a SONYMA cap of $138,900 chooses to increase it to $173,625, a home purchased for up to $199,669 may receive the exemption ($173,625 x 115%), but the amount of the exemption (e.g., 50% of the assessed value in year one) will be computed upon the basis of the $173,625 cap.

December 27, 2001

{1}   Although SONYMA issued new limits on July 27, 2001, based on the statutory language, the limits issued in 1999 control for exemption purposes. Legislation was introduced during the 2002 legislative session (S.7265, A.11091) to substitute the SONYMA limits in effect on the contract date for the purchase and sale of the property. [Ed. note: Legislation to such effect was adopted in 2003 (c.496).]

{2}   The July 27, 2001 limits range from a low of $122,700 to a high of $200,000.