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.

What is a “flip tax coop” in NYC?

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Through this post, NestApple will help you navigate through the technicalities of the Flip Tax which is actually NOT even a tax. After reading this post you will be able to answer all those easy questions:

  • What is a flip tax in NYC?
  • Is the flip tax … actually a tax? why do we call it a tax?
  • How much is the flip tax in New York buildings and in a typical coop?
  • Who pays that flip tax?
  • Are flip taxes both for coop and condo?
  • Can buildings change their flip tax?
  • Is the flip tax tax deductible?
  • Does the flip charge apply on apartments sales to family members?

First of all the name “Flip Tax” is a little deceiving: A flip tax is not a tax at all; for example it is different from the “Transfer Taxes”. It’s a payment done for transferring a property between a seller and a buyer. It is not part of property taxes. It is purely a fee implemented by a building. The percentage is calculated based on the sale price. The flip tax is payable in addition to all other seller closing costs, such as broker commissions and the NYC & NYS Transfer Taxes paid.

Flip taxes came about as a solution for the 1970s housing crisis in NYC. During this time, there was a wave of co-op conversions throughout the city as buildings were privatized. The buildings being privatized were often run down and in dire need of major capital investment. In the 1970s and 80s, when a bunch of crappy rental buildings were converted to co-ops, they had to make lots of improvements. Improvements cost money, and many buildings were left with very little. The tenants (rent controlled for the most part) could sell their apartments at a huge profit, so they now had funds to contribute and build up the reserves for the future if they left. It’s legally sound for co-ops to charge these fees, but only if they’ve already written out the charges and had them approved in the building’s proprietary lease.

First, the tax still discourages flipping. While most original co-op owners have sold by this point, you can still flip an apartment. Regardless of the owner, the tax discourages short term ownership periods. These taxes are just one of the many reasons short-term apartment ownership in NYC doesn’t make sense. The average co-op flip tax in NYC is 1% to 3% of the purchase price. The flip tax varies by building, and in rare instances you may also encounter a condo which charges a flip tax in New York City. The amount is not set in stone; each building has its own regulations and specifications. The typical range is between 1 and 3% but 2% seems to be the magic number.

Flip taxes are only paid in transactions involving properties in a nyc co-op (Condo sales do not have this additional fee and therefore buyers/sellers don’t pay the flip tax.).

Flip tax is a typical “New York Real Estate concept” and it is typically paid by the seller. However, asking the buyer to pay the flip tax sometimes happens in the context of a home  property or bidding war.

The flip tax is tax deductible and you can reduce your taxable capital gains as a seller or as a buyer by subtracting the flip tax as an additional cost of the sale.

New Yorkers being as brilliant as they are came up with this concept to increase revenues in buildings. By imposing a flip tax sellers are reluctant to flip apartments and therefore reducing the turnaround in buildings. Additionally, buildings that have flip taxes generally have fewer assessments and perhaps may have lower debt levels as a result of this additional funding source.

 
A co-op or condo in NYC can change its flip tax by amending the by-laws by receiving approval from a majority of the shareholders. Flip taxes cannot be unilaterally imposed by the board without a shareholder vote.

Flip taxes cannot be unilaterally imposed by the board without a shareholder vote. Most buildings will waive the flip tax if you are just transferring your co-op to a spouse, permanent companion, children, or immediate family.

Even though traditionally sellers are responsible for this fee, in a strong buyers’s market, it has become a negotiating matter.

Some buyers are forced to pay it and others agree to split it. Regardless of who’s covering the costs it is an important concept to keep in mind and always include in your maths when thinking of your next purchase. Flip taxes started out as a practical source of revenue for buildings that desperately needed it. They have since morphed into just another source of revenue for buildings that would otherwise find it. Regardless of the merits of the tax, they are thoroughly integrated into NYC real estate and all buyers should be aware of their potential financial impact.



Georges Benoliel Founder of NestApple - NestApple NYC cashback rebate

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.