What is the flip tax in NYC?
This is a fee paid at closing to a co-op corporation for selling your co-op apartment. Although you typically only see this fee when selling a co-op, some condo buildings in New York City have recently started implementing this fee as well to generate additional income for the building. Typically, the fee is paid by the seller. However, there are a few exceptions where the buyer may have to pay this fee or even where the buyer and seller agree to split the fee. The sales contract will indicate who is responsible for this fee. Generally, the board is not interested in who is paying the fee as long as the fee is paid. According to the New York Business Corporation Law, unless the flip tax was listed in the original offering plan for the building, a flip tax can only be implemented by making an amendment to the building’s proprietary lease or by-laws, which usually requires 2/3 shareholder approval.
Keep in mind that all sales in New York City are subject to both NYS and NYC government transfer taxes. While a flip tax is sometimes referred to as a "transfer tax" it is technically a "transfer fee" and a separate fee from the NYC and NY State transfer tax, which are collected by New York City and the State, respectively. As it is considered a fee and not a tax, the flip tax is not deductible as a property tax.
In addition to any potential flip tax, the following transfer taxes are collected by the city and state.
NYC Real Property Transfer Tax (RPTT) & Filing Fee (1-1.425%): You must pay the Real Property Transfer Tax (RPTT) on sales, grants, assignments, transfers or surrenders of real property in New York City. You must also pay RPTT for the sale or transfer of at least 50% of ownership in a corporation, partnership, trust, or other entity that owns/leases property and transfers of cooperative housing stock shares. The fee is 1% of the total purchase price if $500,000 or less and 1.425% of the full purchase price if over $500,000.
NY State Transfer Tax (0.4%-0.65% of gross purchase price): New York State imposes a real estate transfer tax on conveyances of real property or interests therein when the consideration exceeds $500. Properties sold for less than $3,000,000 are hit with a 0.4% transfer tax while properties sold for $3,000,000 and above are hit with a 0.65% transfer tax.
Where do I find the amount of the Flip Tax for a building?
The flip tax is charged directly by the cooperative building (or condominium), which means that the fees range from building to building. You can typically find out how much the flip tax is by looking at the building’s by-laws. However, sometimes, the flip tax will be listed on a co-op’s purchase application. If you have any questions about the flip tax, you can always have your attorney reach out to the managing agent, who should disclose the fee.
What is the average flip tax in New York City?
Flip taxes are typically calculated at 2% of the gross sale price but can range from one to three percent. However, HDFC co-op, where flipping is highly discouraged, can have flip taxes as high as 20-30 percent (or even higher).
Flip taxes in NYC can be structured in any of the following ways:
- Percentage of the gross sale price — (e.g., 2%);
- Set dollar amount per co-op share owned — (e.g. $50 per share 100 x $50 = $5,000;
- Flat-fee flip tax — i.e. $5,000;
- Percentage of sale profits — i.e., 15% of gross profits;
- Sliding scale – i.e., if you’ve been in the building less than one year 5% if you’ve lived in the building 1-4 years, 2.5%, if you’ve been in the building 4+ year 1%; or
- A combination of any of the above.
Are real estate flip taxes in NYC tax deductible?
For tax purposes, flip taxes are not tax deductible as they are considered to be transfer fees and not a tax. However, you can deduct the amount of a flip tax from your capital gains, as a cost of the purchase or sale which reduces your net proceeds, which will, in turn, reduce your overall tax liability.
Can I avoid a Flip Tax?
In general, the only way to avoid a flip tax is to avoid selling your property altogether. However, if you are a sponsor, then you probably are exempt from paying a flip tax. Nevertheless, if for some reason you can convince a buyer to pay or split the flip tax with you, then this is typically the only way to avoid paying a flip tax as a seller.
Do you pay a flip tax when transferring ownership to a family?
The building’s proprietary lease or by-laws will explain whether a flip tax will be charged on transfers to family members. Usually, most co-ops will waive the flip tax if you are transferring your co-op apartment to a spouse, domestic partner, or children. However, every building is different.
What's the difference between a flip tax and a working capital fund contribution fee?
Working capital contribution fees are nonrefundable fees paid by buyers in new construction buildings. The purpose of the fee is similar to flip taxes in that the money is used for the building’s operating expenses. Most working capital fund contributions are equivalent to one to two months maintenance costs in co-ops or one to two months of common charges in condos.