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There is a tax when a property, including a co-op and 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 how this works since it can be a point of negotiation with sellers.
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 a 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.
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 co-op 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.