Buying or selling real estate in New York City is different from other cities in the US. New York City and State require a transfer tax be paid, at the closing of a real estate transaction. The transfer tax often confuses; for example in the case of a resale the seller pays it; for new developments; it is paid, by the buyer unless negotiated.
Since it is 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 frequently asked questions.
You should be aware of how this works since it can be a point of negotiation with sellers.
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What is The Transfer Tax?
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.
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 is easy to understand why buyers often begin to feel overwhelmed. This is especially true for buyers who are going through this process for the first time.
If you are 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 the buying process before proceeding.
How Much Is The NYC Transfer Tax?
The New York City 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 higher than this amount.
As an example, you purchase a condo unit for $490,000. The tax due would be 1% of this sum, or $4,900 if the same property sold for $510,000, the tax rate increases to 1.425% for the entire amount, or about $7,628.
How Much Is The NYS Transfer Tax?
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.
The recent 2020 budget passed by the state legislature an increase of transfer tax applies to the sale of all real property in the state. In New York City; the transfer tax rate will rise from 0.40% to 0.65% for residential properties sold for at least $3,000,000. The increase in tax rates takes effect with properties closing on or after July 1, 2019.
Who Pays The Transfer Tax?
For resales 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 market, you have an opportunity to negotiate 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 scenario to come out on top. Paying the tax might be necessary to remain competitive with other bidders.
Are There Exemptions?
When changing the ownership structure but the economic interest is unchanged then no transfer tax due. For example; 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.
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.
When Do You Need to Pay The Tax?
The transfer tax, which is 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 corporation.
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.
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 apartment; based on the median prices.
Given the sums involved, you can negotiate from a stronger position with your increased knowledge.