New York state has made changes to the real estate transfer taxes that apply to conveyances taking place after mid-2019. New York State imposes a real estate transfer tax upon conveyance of real property or interests therein when the consideration exceeds $500. The transfer of controlling interest of the real property, or the transaction of real property within New York State, will most likely require payment of a least one single transfer tax and could consist of multiple. If you are purchasing property in New York City, an additional transfer tax will be levied on almost all real property considerations. The following should serve as a general guide to New York State and New York City transfer taxes.
New York State Transfer Tax Rate and Changes
Changes enacted by the New York State Senate and Assembly as part of the 2020 budget will apply only to cities with a population of 1 million or more. Typically, the transfer tax is imposed on real property located within the state, and such transfer taxes are to be imposed on transfers of residential property where the consideration is more than $1 million.
There are currently two separate real estate transfer taxes in the state of New York, the first of which applies to all real property and is imposed at a rate of $2 for each $500 of consideration. The new legislation will levy an additional tax of $1.25 for each $500 on transfers of residential real property over $3 million and commercial property over $2 million. The New York State transfer rate for residential real property between $1 million and $2,999,999 million is .4% and over $3 million is .65%, the commercial New York State transfer tax rate will be .4% under $2 million and .65% over $2 million.
Regarding residential property in New York State, if a grantee is seeking to purchase a property wherein the consideration is $3.5 million, the .65% tax rate would apply to the entirety of the purchase price and not simply the amount exceeding the threshold. Meanwhile, the New York City transfer tax rate is 1% of the consideration on real property not exceeding $499,999, and 1.425% of consideration surpassing $500,000. These two separate taxes combined in New York City property transfer scale between a total of 1.4% and 2.075% on consideration of residential real property.
For example, homes sold in New York City totaling below the threshold of $500,000 will be charged the sum of the New York State transfer tax (.04%) and the New York City transfer tax (1%), totaling 1.4% transfer tax on the consideration of real property. Between this threshold and just below the 3 million dollar cutoff, the sum of the NYS transfer tax (.4%) and the NYC transfer tax (1.424%) will total 1.825% on a residential purchase in NYC. Anything over $3 million will be subject to the NYS transfer tax rate of .65% as well as the NYC transfer tax of 1.425%, totaling 2.075% in the entirety of transfer taxes levied on a residential purchase.
Who Pays the NYC Transfer Tax
The New York City transfer tax is typically covered by the seller. However, when purchasing a property in a new development, there could be an occasion that the buyer is asked to pay the transfer tax by the developer or sponsor. However, this is always up to negotiation and often depends on market conditions. Otherwise, in standard real estate property transfers, the seller will need to pay the transfer tax at closing.
Some applicable rules regarding New York transfer taxes may be subject to change. Certain circumstances such as a transfer of real property per a bankruptcy court, the transfer of real property by or for a nonprofit, transfer of property to an eligible tax-exempt organization, transfer of property surrounding sponsor sales, or an authorized transaction during a confirmed reorganization under bankruptcy code 1146(c) may not be subject to the transfer tax.
When is the Transfer Tax Applicable
Formally the Real Property Transfer Tax (RPTT), The New York City transfer tax is payable on sales, grants, transfers, surrenders, or assignments, of property in New York City and is applied whenever real estate is transferred between two parties. The tax applies to almost all properties, including but not limited to residential ventures in the conveyance of condos, co-ops, and townhouses.
Relief for Transfer Taxes
While there is no way around paying New York State or City transfer taxes, the best way to offset your closing costs is to talk to your real estate broker about a commission rebate. Real property transfers in the state of New York already incorporates a real estate commission of 6% in the sales price, and typically as a rebate, your broker may be willing to split a portion of their share of the commission, often balancing a large portion of your transfer tax costs.
Also, make sure to discuss with your broker, agent, and attorney all aspects of your closing and finalization of property transfer to ensure you are getting the best offer and that you have considered the cost of all taxes to be levied into your closing costs. Making sure that you are aware of your final closing payments will keep you from unforeseen circumstances surrounding the closing day.
Understanding the significance of New York transfer taxes, both in the state and more often in New York City, can prove to be complicated. A title insurance policy will not cover your transfer tax, so seeking experienced guidance in New York City to maneuver the vast applications of numerous tax applications during real property conveyance is highly recommended.