Buying or selling real estate in New York City is a different experience from just about anywhere else in the world. Although buying and selling real estate may seem like something that would be consistent regardless of location, factors like the nature of the New York market make it a unique experience.
One factor that causes this market to be different from many others is the New York City real estate transfer tax. Since it’s common for people to be unaware of this specific tax until the time comes to pay it, we thought it would be helpful to provide answers to some of the most common questions that come up about it.
There is a tax when a property, including a co-op and new development condo, is sold. This is called the transfer tax, and New York City levies it at closing. The city’s transfer tax is applicable when the sale or transfer is valued at more than $25,000, a level barrier that should be quickly cleared. You should be aware of how this works since it can be a point of negotiation with sellers.
What’s the best way to prepare for the impact of this tax and other unique factors?
Since the New York City real estate transfer tax is just one example of the unique factors that impact buyers and sellers in this market, it’s easy to understand why buyers often begin to feel overwhelmed. That’s especially true for buyers who are going through this process for the first time.
If you’re thinking about buying property in New York but are worried about encountering unforeseen challenges, the best step you can take is educating yourself about the intricacies of buying New York City Real Estate before proceeding with your purchase.
How much is the tax?
The tax rate is straightforward; For one to three family homes and individual condo/co-op units, it is 1% of the sales price for those sold at lower than $500,000. The rate increases to 1.425% if it is greater than this amount.
As an example, you purchase a condo unit for $490,000. The tax due is 1% of this sum, or $4,900. If the same unit sold for $510,000, the tax rate increases to 1.425% for the entire amount, or about $7,628.
New York State
New York State also has a transfer tax. It is $2 for each $500 of consideration, which is borne by the seller. In the event the seller does not pay the tax or is exempt, the tax falls on the buyer.
Who owes the tax?
In New York, the seller owes the tax. While this is open for negotiation, it is rare that a buyer pays the transfer tax in a resale. However, this is not as straightforward as it seems.
In new construction, the sponsor usually asks buyers to pay the city and state transfer tax. In a soft market, such as the current luxury segment ($5 million and up), you have an opportunity to negotiate on new development by perhaps asking for a price reduction and that the sponsor pays the city and state taxes.
If negotiating a resale, the buyer may wish to offer to pay the transfer taxes when involved in bidding war or best and final situation to come out on top. Paying the tax might be necessary to remain competitive with other bidders.
Are there exemptions?
The transfer tax is not due if you are merely changing the identity of the ownership, but the economic interest is unchanged. For instance, if you own a condo unit as an individual and transfer it to an LLC, no tax is due. However, in a divorce situation, the transfer of property is subject to the tax.
You are highly unlikely to come across other situations where the transfer tax is not triggered. Those exempt include federal, state, and foreign governments. However, if the government entity is selling the property to a non-government entity, the tax is due.
When do you need to pay this tax?
The NYC real estate transfer tax, which is often referred to as the Real Property Transfer Tax, applies to sales, grants, assignments, transfers or surrenders of real property at closing. This tax is also applicable if you own at least 50% of an entity like a corporation that owns property as well and decide to sell the entity.
Is there a threshold for this tax?
Yes, the New York City real estate transfer tax applies to sales or transfers that are for at least $25,000.
Are there exemptions from the New York City real estate transfer tax?
While the United States government and its agencies, New York state and its agencies, and foreign governments are exempt from the tax, exemptions aren’t available for individuals or private companies. Even in the event of someone purchasing the property from a government entity, the non-government individual or company is still responsible for paying this tax.
How do you apply for this tax?
If you end up in a situation such a buying a New Development or from a Sponsor that requires you to pay the New York City real estate transfer tax, your real estate attorney will handle this at closing. Additionally, there are two ways to submit your application. In addition to applying in person, the official website of the city of New York makes it possible to apply online.
How to file
In New York City (except Staten Island), you need to create the forms online using The Automated City Register Information System (ACRIS), which allows you to fill out the required fields. The return must be filed within 30 days after the sale, and the tax is paid simultaneously.
The transfer tax can add up pretty quickly given New York City’s real estate values. For instance, real estate appraisal and consulting firm Miller Samuel noted median sale prices for co-ops was about $800,000 in the first quarter and nearly $1.7 million for condos. The transfer tax works out to more than $11,000 for a cooperative and $24,000 in the case of a condo, based on the median prices.
Given the sums involved, you can negotiate from a stronger position with your increased knowledge.
- 1 What’s the best way to prepare for the impact of this tax and other unique factors?
- 2 How much is the tax?
- 3 New York State
- 4 Who owes the tax?
- 5 Are there exemptions?
- 6 When do you need to pay this tax?
- 7 Is there a threshold for this tax?
- 8 Are there exemptions from the New York City real estate transfer tax?
- 9 How do you apply for this tax?
- 10 How to file
- 11 Final thoughts