When buying a home in New York, you'll likely come across real estate transfer taxes. This is a tax that is charged by the city and state when you transfer ownership of your deed. The amount of transfer taxes varies depending on where you live. In NYC, for example, the tax is 1% for properties worth up to $500,000 and 2% for properties worth more than $1 million.
The State of New York and many cities and towns also charge local real estate transfer taxes on top of the statewide rate. This adds up to a significant closing cost that is usually paid by the seller. The tax is based on the purchase price of your home and typically increases as your property value rises.
Who Pays the New York Transfer Tax?
In the state of New York, transfer taxes are generally payable by the seller and is a statewide real estate transaction fee of $2 for each $500 or fraction thereof of consideration on conveyances of residential and certain other types of real property within a municipality with a population exceeding one million. The transfer tax is payable in addition to the applicable sales, property, and mortgage recording taxes.
For sellers in NYC, the combined NYC and New York State transfer tax rates are a seller's second largest closing cost after broker commissions. The NYC Real Property Transfer Tax (RPTT) is 1% to 1.425% for residential deals and higher rates apply for commercial transactions and multifamily properties with 4 or more units.
Prior to the recent change in NY transfer taxes laws, the New York state transfer taxes were 0.4% of the full consideration on a conveyance of "residential real property" for consideration of $3 million or more and on conveyances of other real property (i.e., multi-unit and commercial) for consideration of $2 million or more.
New York's Mansion Tax was passed in 2011 as a way to generate revenue for the city's education, infrastructure, and other social programs. The Mansion Tax is a supplemental transfer tax that is levied on the purchaser of a residence that exceeds the city's $1 million threshold and is payable in addition to the New York State transfer tax.
The city and state are using the proceeds from this tax to fund a variety of projects such as affordable housing, infrastructure improvements, and school modernizations.
Real estate transfer taxes can be a significant expense when purchasing and selling property. Understanding how these fees work and who is responsible for paying them can help you plan your purchase or sale properly. In New York State, the amount and who pays is based on the price the property sells for. If the purchase price is over $1 million, there is also an additional tax known as the mansion tax.
The transfer tax is a fee charged upon the transfer of ownership of real property in the City of New York, State of New York and certain other counties. In the City, the transfer tax is a percentage of the sales price or “recorded consideration” for the property. For example, a residential property sold for $2,000,000 would be subject to NYC transfer tax of 1.425% ($2,000,000 x 0.65%).
Other types of property are subject to transfer taxes in the State of New York and include one, two and three-family houses, individual residential cooperative apartments and condominium units. Commercial properties are also taxable in the State of New York and may be subject to various taxes depending on the specific type of property. The tax is paid by the seller (grantor) or by the buyer (grantee). A sale that involves a partnership, corporation, trust or other entity will also be subject to the transfer tax and is considered a sale of the business (N.Y. Tax Law SS 1401).
Who Pays Transfer Taxes?
In the vast majority of transactions, New York transfer taxes are paid by the seller. This is primarily because of the way that the New York State and NYC transfer taxes are structured. If you are purchasing a sponsor unit in a new development, the developer will usually cover the transfer taxes as part of the negotiation process.
However, buyers do have some options to avoid the transfer tax. If you are a first-time homebuyer, you can qualify for a transfer tax exemption that allows you to reduce or eliminate the transfer tax on your new home. You may also be able to negotiate with the seller to have them pay some or all of the transfer taxes.
As a seller, you can avoid paying mortgage recording and New York transfer taxes by assigning your existing mortgage to the buyer in a CEMA transaction. This will not save you from paying NY transfer taxes but it will help minimize them by reducing the amount of the current lien. You should consult your attorney and/or title company when preparing to sell your property to make sure all transfer tax forms are filed correctly.
When purchasing or selling real estate in New York, the transaction comes with several fees and taxes. In NYC, these are known as transfer taxes and they’re a significant portion of the closing costs. Fortunately, there are some exemptions for transfer taxes in the state of New York that may help buyers and sellers avoid some of these costs.
What is a transfer tax?
A transfer tax is a fee charged by a state, county or municipality when real property is transferred within the jurisdiction. The purpose of the transfer tax is to provide revenue to those entities that benefit from the real estate transactions in their jurisdictions.
The amount of the transfer tax is based on the sales price of the property and is typically paid by the seller. However, the buyer may also be responsible for paying a portion of the transfer tax, depending on the terms of the sale. Some states offer special transfer tax exemptions for first-time home buyers, while others exempt certain portions of the sales price from the transfer tax.
In New York, the state and city both charge transfer taxes. The city’s rate is 0.4%, while the state’s is 1.4%. In addition, New York City charges a Mansion Tax, which is 1% of the sales price over $1 million.
When is transfer tax due?
In general, the transfer tax is due upon the conveyance of any real estate in New York state. This includes both residential and commercial properties. Additionally, it is due for the transfer of co-op shares over $25,000. In some cases, the transfer tax may be due when transferring ownership to another corporation that holds real property. However, this is only when beneficial ownership of the real estate remains the same.
The transfer tax is generally paid by the seller, though the terms of a sale can affect this. For example, in new development, unless it’s negotiated otherwise, the sponsors (original owners or developers) of the project will normally pay the transfer tax on behalf of the buyer.
If a buyer goes the FSBO route, or For Sale By Owner, this can also affect who pays the transfer tax. This is because buyers who work with a broker are often required to pay a commission as part of their deal, which will offset the cost of the transfer taxes.
Buyers who are able to take advantage of a purchase CEMA, which functions as an assignment of mortgage, can save on transfer taxes. The purchase CEMA allows the buyer to consolidate their existing mortgage with the seller’s and reduce their overall transfer tax liability by the amount of the outstanding loan. This is a great way for new buyers to save on the transfer tax in NYC and in other states. There are other ways to minimize transfer taxes, but the fact of the matter is that everyone in NYC must pay NYS and city transfer taxes when they sell a property.
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