A Comprehensive Guide to the NYS and NYC Transfer Tax
What Is The NYS And NYC Transfer Tax?
In New York City, a Real Property Transfer Tax (RPTT) is levied on all transfers of real property and co-op shares exceeding $25,000. It’s also applicable when there’s a transfer of over 50% of the ownership in a corporation that owns property. In addition to this, New York State imposes its own transfer tax on all property transfers above $500. Other states and cities have their unique rules, differing from those of New York City and New York State. The cumulative effect of all transfer taxes leads to higher closing costs for most sellers. The New York City transfer tax is a significant revenue source for the city, with an expected generation of $1.5 billion in 2015 alone.
Who pays the transfer tax?
The tax is typically imposed on the seller (or “grantor”) during the conveyance of real property, making it their responsibility to pay. However, if the seller somehow evades the tax payment or becomes unreachable, the burden of payment falls onto the buyer. One way or another, the tax must be paid.
One sector of the market where buyers usually pay the transfer tax is new development. Unless negotiated as part of the purchase, sponsors expect the buyer to shoulder the transfer tax. In softer markets, this is more negotiable. The question of who pays the transfer tax in a sponsor sale can feel like a principled stance for many participants, but it’s simply part of the overall negotiation. A dollar paid is a dollar paid, regardless of its destination. However, buyers considering new developments in New York City should be aware that the “sticker price” is actually 1.825% higher for properties under $3,000,000 and 2.075% for those priced $3,000,000 and up.
What Is The History Of The New York City Real Property Transfer Tax?
The inception of the New York City transfer tax dates back to 1959. Since then, both the rate and the scope of the tax have expanded significantly. Originally, sellers of real property were subject to a 0.5% tax in 1959. However, that rate has increased to 2.075% for properties in New York City valued over $3,000,000, and it now encompasses co-ops as well.
The mansion tax is another type of transfer tax. Established in 1989 and later expanded in 2019, the mansion tax is the buyer’s responsibility. This tax is levied on residential properties sold for $1 million or more in New York City.
What Are The New York Transfer Tax Rates?
The New York State (NYS) transfer tax stands at 0.4% for properties valued below $3,000,000 and increases to 0.65% for those priced at $3,000,000 and above. As for the New York City transfer tax, it ranges from 1% to 1.425% for properties valued over $500,000. The transfer tax is calculated based on the purchase price of the property.
In this post, we’re focusing on “Residential Type 1” or “Residential Type 2” properties. These categories include 1-3 family houses as well as individual condo and co-op units – in essence, residential properties.
However, it’s important to note that other types of properties carry higher transfer taxes. After adjustments made in 2019, New York State now imposes a 0.4% tax on properties sold under $2,000,000 and a 0.65% tax on those above this price. Similarly, New York City levies a 1.425% tax if the sale price is under $500,000 and a hefty 2.625% tax for properties sold over $500,000.
How Is The Transfer Tax Calculated?
Here are some examples of what transfer taxes might be due on various types of properties in New York. If you’re selling a home or apartment, the primary variable to consider is whether the property is located in New York City. Properties in the city are subjected to an additional transfer tax of either 1% or 1.425%.
|Property||Price||NY Transfer Tax||NYC Transfer Tax||Total Transfer Tax|
|NYC Condo||$1,500,000||0.4% or $6,000||1.425% or $21,375||1.825% or $27,375|
|Westchester House||$975,000||0.4% or $3,900||N/A||0.4% or $3,900|
|NYC Co-op||$475,000||0.4% or $1,900||1.0% or $4,750||1.4% or $6,650|
|NYC Office Building||$125,000,000||0.65% or $812,500||2.625% or $3,281,250||3.275% or $4,093,750|
Which Property Transfers Are Exempt From The Tax?
While we understand that the intricacies of real estate transactions may appear complex, especially in the high-stakes luxury market of New York City, rest assured that SPiRALNY is committed to guiding you through each step of the process, including understanding and dealing with transfer taxes.
It’s worth noting that the majority of our clients will be subject to the transfer tax, as only a few exceptions apply to genuine, arms-length real estate transactions. According to New York City’s official guidelines, these exceptions are limited to transactions:
– Involving the United Nations or any other international organization of which the US is a member
– Engaged with non-profit organizations
– Executed with any government body exempt from the tax payment
– Used to secure a debt
– Transfers from an agent to its principal or vice versa
– Carried out by an executor as outlined within a will (However, if a property is sold by an executor, the transfer tax still applies)
– Where the beneficial ownership remains the same
These exceptions dig deep into the complexities of tax laws. If you believe you may be exempt from paying the transfer tax, we highly recommend consulting with a Certified Public Accountant (CPA) to analyze your specific situation. Remember that even in the scenarios outlined above, a real property transfer tax return must still be filed.
Who Is Exempt From The Transfer Tax?
While SPiRALNY always strives to provide you with solutions that maximize your financial benefits, we unfortunately have to share some not-so-favorable news regarding exemptions from the transfer tax. In essence, the exemption is mainly applicable to governmental bodies.
Unless you represent the federal government, the state of New York, or a foreign government, the transfer tax is inevitable. It’s important to note that even for foreign governments, the property must be exclusively used for diplomatic or consular purposes to be eligible for this exemption. If used for any other purpose, they may still be subject to the transfer tax.
How Do I File And Pay The Real Estate Transfer Tax?
If you are selling a co-op in New York City, your attorney will be responsible for sending your transfer tax to the county clerk. This is done alongside the submission of the buyer’s mansion tax (if applicable) and a Form TP-584. It’s essential to engage with an experienced attorney who is familiar with these procedures to ensure the process goes smoothly.
On the other hand, if you’re selling real property such as a condo or a house, the responsibility of collecting and sending in the transfer tax falls onto the title company. They handle this along with the buyer’s mansion tax (if applicable) and Form NYS TP-584.
How Can I Reduce My Closing Costs As A Seller In New York City?
In the dynamic world of New York City real estate, particularly in the luxury segment, transfer taxes often represent the second-largest closing cost, falling only behind real estate commissions. SPiRALNY’s analysis of the purchase and sale of an average Manhattan condo reveals that transaction costs account for at least 9.3% of the property’s value. Regrettably, most components of this cost – transfer taxes, mansion tax, title insurance – are non-negotiable and extremely difficult to circumvent.
However, there’s a silver lining. A significant portion of that 9.3% – specifically 6% – is attributed to the total broker commission, which is always open to negotiation. By partnering with SPiRALNY for your buying and selling needs, you can effectively reduce this percentage to 5.3%. Leveraging SPiRALNY’s full-service, 1% listing service, a seller can realize savings that surpass the cost of the transfer tax – even in the bustling real estate market of New York City!