In New York City, transfer tax NYC property transfer taxes are one of the second largest seller closing costs behind broker commissions. Combined with New York State transfer tax NYC, it can add up to a hefty sum for homeowners and investors alike. Fortunately, both the transfer tax NYC and NYS transfer taxes have a number of exemptions to help alleviate some of the burden.
In order to determine if you may be exempt from either of these taxes, it’s worth speaking with your local real estate agent and looking through the list of applicable New York State exemptions. It’s also worthwhile to discuss your specific sale with your attorney and/or title company, as they will have experience helping their clients pay the necessary transfer tax NYC.
Generally, the person selling the property is responsible for paying the transfer tax NYC. However, it’s important to note that both the transfer tax NYC and NYS transfer taxes can be negotiated to be paid by the buyer if the seller is not exempt from them. This is often the case in sponsor units in new developments.
NYC Real Property Transfer Tax
In most cases, the transfer tax NYC is owed on the full sales price of the property. For example, if you’re selling a studio apartment in Tribeca for $425,000, the total transfer tax NYC would be $5,950 ($425,000 x 1.4%). This is a combination of the New York state transfer tax and the transfer tax NYC.
If you’re selling a co-op or townhouse, the transfer tax NYC is slightly different. The NYC property transfer tax NYC is based on the purchase price of the unit plus an additional 0.5% on the purchase price of the shares, which are then used to finance the common charges and maintenance of the building. For co-ops, this additional amount is known as the “Mansion Tax.”
For a one or two-family house, an individual residential condominium unit and most other types of properties in New York City, the transfer tax NYC rate is 1% of the sale price of the property. This rate was increased from 0% in July 2019 to 1% as part of the city’s budget for 2020.
NYC transfer tax NYC on Gifts
One of the most popular questions that we get from home buyers and sellers is whether or not New York City and State transfer tax NYC apply to gifts. The answer is yes, they do.
The transfer tax NYC is one of the largest closing costs that buyers and sellers will have to pay in a residential sale or co-op sale. Depending on the purchase price, state and city transfer tax NYC will add up to between 1.4% and 2.7% of the sales price. CPAs who advise clients on real estate transactions should be aware of these extra fees and the tax impact they will have on their client’s bottom line.
In addition to the standard 6% commission that is paid by sellers, both NYC and NY State have their own transfer tax NYC. The city’s Real Property Transfer Tax, or RPTT, is 1% of the sales price for residential and multifamily properties and 1.425% for commercial deals. In addition, the city also has an additional mansion tax for sales over $1 million.
These taxes will typically be payable at the time of the closing by the seller (or “grantor”). If the grantor is exempt from paying the tax or does not pay it, the buyer will be required to pay it. In the case of new construction or sponsor sales, it is typical for the sponsor – the original owners or developers - to pay the transfer tax NYC on behalf of the buyer.
While there are several exemptions to the transfer tax NYC, most property types are subject to it. The only exceptions are governmental property, which includes public and educational institutions, and non-profit organizations.
Sellers who opt to go the FSBO route (for sale by owner) may be able to avoid paying the transfer tax NYC, but only if they are able to sell for a fair market price and find an unrepresented buyer that will negotiate their own broker commission. The FSBO approach can make a sale more complicated and increase the likelihood that the transaction will fall through.
The good news is that transfer tax NYC are deductible as part of the cost basis for both the buyer and seller in a taxable sale. However, the bad news is that if the transaction falls through or fails to close, the tax is not deductible as an ordinary and necessary expense for either party.
There are some ways for real estate investors to reduce their transfer tax NYC liability, such as using a purchase CEMA (Closing Energy Management Agreement) when selling an investment property. A purchase CEMA acts like an assignment of mortgage and consolidates the seller’s outstanding loan with the buyer’s new loan, thus reducing their overall transfer tax NYC liability. In addition, it is possible for the buyer to take over and pay the seller’s existing loan, thus reducing the seller’s transfer tax NYC liability. Talk to your advisor about these and other strategies for minimizing transfer tax NYC on property sales in NYC.
The transfer tax NYC is a significant cost that most home and condo buyers are unaware of. It can add up to between 1.4% and 2.075% of the sales price and is one of the largest closing costs on any property sale in NYC. It is also a fee that can't be avoided, so it is important to understand how it works and who is responsible for paying it.
In the vast majority of real estate sales in New York, the sellers are responsible for covering transfer tax NYC and NY state transfer taxes on their properties. This includes resale homes, new construction, and sponsor sales. Sponsor sales are new construction or condo conversions that are a part of a larger development and are not a traditional private resale. It is customary for the buyers of sponsor units to pay both the transfer tax NYC and NY State transfer taxes as well as their own attorney fees. This is in contrast to a traditional private resale where the seller pays the city and state transfer taxes.
The City of New York has a transfer tax called the Real Property Transfer Tax, or RPTT for short. It was first introduced in 1959 and has since grown to include all residential properties (townhouses, co-ops, and condos) as well as commercial property. It now covers all property sales and charges 1% for anything below $500,000. The State of New York also has a Mansion Tax, or supplemental transfer tax NYC which is charged on all properties that are valued at over $1 million.
Sellers who choose to go the FSBO route, or For Sale By Owner, can sometimes avoid paying these transfer taxes by taking on the responsibility of paying the broker commission themselves. This can be a complicated process, however, and may even result in your home selling for less than it would have otherwise.
Buyers can often save on these transfer taxes by utilizing a broker commission rebate, or a broker's discount, when purchasing their home or condo. There are many great brokers who will offer buyers a rebate of up to 2.25% on the purchase price of their new home or condo. This can help to offset the transfer tax NYC and NY state transfer taxes and can make a big difference in your closing costs.
If you are looking to purchase a co-op or condo in New York, we'd be happy to answer your questions about transfer tax NYC and other closing costs. Our team of experienced New York real estate lawyers is here to guide you through the process from start to finish.
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