The Nest

NestApple's Real Estate Blog

Featuring real estate articles and information to help real estate buyers and sellers. The Nest features writings from Georges Benoliel and other real estate professionals. Georges is the Co-Founder of NestApple and has been working as an active real estate investor for over a decade.

Overview of the NYS and NYC Transfer Tax

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Our article on the NYS and NYC Transfer Tax will explain what these taxes are. Who is responsible for paying them how they came about. Suppose it’s possible to avoid them. And how to save money on transfer taxes and other closing costs.

What Is The NYS and NYC Transfer Tax?

Overview of the NYS and NYC Transfer TaxNew York City and New York state are always looking for ways to generate revenue. The transfer tax is a significant source of income for them. The NYC transfer tax or RPTT (Real Property Transfer Tax) applies to all real property transfers & co-operative shares over $25,000. It also applies to transfers of control (over 50%) in any corporation that owns a property. The result is that this tax generated over $1.5 Billion in revenue for NYC and is one of the highest closing costs for most sellers.

What is the New York City Transfer Tax Rate?

For virtually all residential properties like condominium units, co-op units, and 1-3 family houses, the New York City transfer tax ranges from 1% for properties under $500,000 to 1.425% on properties above $500,000.

Like the mansion tax, the transfer tax is based on the purchase price and not the appraised value. For example, if you sell a property for $400,000, you’ll pay NYC a $4,000 tax. However, if you sell a home for $1,000,000, you’ll be paying $14,250.

What Is The NYS Transfer Tax?

transfer taxesNot to be outdone, New York State imposes its own transfer tax on all transfers of property above $500. In July 2019, NY State passed a new law that added a second transfer tax to NYC’s residential and commercial properties that sell for more than $3 million and $2 million, respectively.

What is the New York State Transfer Tax Rate?

The NY State transfer tax rate is 0.4% for properties that sell for less than $3,000,000 with an additional 0.25% for properties that sell for $3,000,000. That means the total effective NYS transfer tax for a $3 million property will be 0.65%. For example, if you sell a $1,000,000 condo, you’ll be paying $4,000 to NY State, in addition to $14,250 to the city, while if you sell a $3,000,000 condo, you’ll owe New York State $19,500.

Who Pays The NYS and NYC Transfer Tax?

The seller is responsible for paying the transfer tax. The one main exception is for anyone purchasing in a new development, as sponsors will often try Overview of the NYS and NYC Transfer Taxto pass the tax on to buyers. But this is highly negotiable and often dictated by the overall state of the real estate market. If the market is hot, sponsors will insist on passing the tax along to buyers, while if it’s a soft market with buyers in control, they can quickly negotiate that the sponsor covers the charge.

The one other exception when a buyer will need to pay the tax is if the seller decides to skip town. If this happens, the buyer will become responsible for the transfer tax. The local and state governments are getting paid.

If you’re selling a home in NYC, many real estate professionals in the city will refer to your combined city and state tax dues as the “NYC Transfer Tax.”

What Is The History Of The NYC Real Property Transfer Tax?

The transfer tax was initially introduced in New York City in 1959 and has grown considerably since then. Initially, the fee only applied to real property (meaning co-op sellers didn’t pay it). In 1959, sellers only paid a transfer tax of 0.5%, significantly less than the 1.425% city tax paid today.

Another local transfer tax to worry about is the mansion tax, introduced in 1989. Luckily for sellers, the mansion tax is paid by the purchaser.

Is There Any Way To Avoid The Transfer Tax?

Unfortunately, no. It’s impossible to avoid these taxes as only the local and state governments tend to be exempt. Simultaneously, only a handful of properties are exempt (we’ll detail these situations below). That said, you do have some ways to mitigate the transfer tax’s cost, which we’ll describe shortly.

So Who And What is Exempt From the Tax?

The NYC Department of Finance website outlines the few exemptions here.

Exempted institutions include:

  • The US Government and its agencies.
  • The New York State govt, its agencies, and political subdivisions
  • Any foreign government, or any person acting on behalf of a foreign govt., or the head of a foreign govt’s diplomatic mission, is exempt. The premises must be used exclusively for diplomatic or consular purposes. Other usages may result in the payment of tax.

Exempted transfers include those:

  • To or from the UN or other worldwide organization the US is a member of
  • To or from a non-profit organization
  • Transfers used to secure a debt.
  • Transfers from an agent to its principal or vice versa
  • By an executor of a will. At the sale, however, the transfer tax applies.
  • Where beneficial ownership remains the same
  • To any govt body that is exempt from paying the tax

How Can You Reduce Your Closing Costs And Mitigate the Transfer Tax?

Selling a property in New York City remains exceptionally costly due to the very high closing costs. Not counting the traditional 6% brokers commission, Overview of the NYS and NYC Transfer Taxtransfer taxes represent the most considerable closing cost for sellers. Unlikely commissions, however, transfer taxes are not negotiable and virtually impossible to avoid. The best way to mitigate these costs remains to work with a broker who will charge you a lower fee to sell your home. Here at NestApple, we offer a full-service listing service for as little as 1%.  Then, the best NestApple agents will market your property, and you’ll save tens of thousands of dollars in closing costs by paying a lower commission. 

Written By: Georges Benoliel

Georges has been working in Wall Street for the last 16 years trading derivatives with hedge funds. He has been an active real estate investor for over a decade. Georges graduated from HEC Business School in Paris and holds a master in Finance from ESADE Barcelona.

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