All About the NYS and NYC Transfer Tax
The NYC Transfer Tax, which is more formally known as the NYC Real Property Transfer Tax (RPTT), is a tax that applies to all transfers of real property and cooperative shares over $25,000. The NYC RPTT also applies when transferring a majority of the ownership in any corporation that owns NYC property. The New York City Transfer Tax was introduced back in 1959 when it was only 0.5% of the sales price. Today the rate is higher, as the city applies a 1% tax on any properties sold for less than $500,000, while properties sold for over $500,000 are subject to a 1.425% tax.
New York State also applies a 0.4% transfer tax on all properties. Additionally, in 2019, NYS imposed an additional 0.25% transfer tax on all properties above $3 million. Add the two together, and someone who is buying a townhouse, co-op, or condo in New York City will pay 1.4% for homes sold under $500,000 and 1.825% for those that go for $500,000 to $2,999,999, and 2.05% for any property that sells for over $3,000,000. The only way not to pay this tax, with a few exceptions noted below, is if the property sold for less than $500.
Who pays the property transfer tax in NY?
Buyers, make sure the seller doesn’t skip town. It’s the seller’s responsibility to pay the NY transfer tax on previously owned properties. However, besides the purchase of new development property, there’s one circumstance where buyers can get stuck with the transfer tax bill. If the tax authorities can’t find the seller – if he skips town and moves to Namibia, let’s say – the buyer is responsible for paying the tax.
How is the Transfer Tax Calculated in New York?
Overall, this is pretty straightforward as virtually all properties in NY State will get hit with a .4% transfer tax, so the only question is whether or not you'll be paying the NYC transfer tax, and which tax rate you'll be subjected to on the city level.
|Property||Sale Price||NY State Transfer Tax||NYC Transfer Tax||Total Transfer Tax|
|NYC Condo||$2,000,000||.4% or $8,000||1.425% or $28,500||1.825% or $36,500|
|NYC Co-op||$5,000,000||.625% or $31,250||1.425% or $71,250||2.05% or $102,500|
|NYC Condo||$400,000||.4% or $1,600||1% or $4,000||1.4% or $5,600|
|Long Island House||$1,000,000||.4% or $4,000||None||.4% or $4,000|
The NYC and New York State Transfer Taxes are Big Money Makers for Government
Unfortunately, sellers are stuck paying the Transfer Tax barring a few exceptions. There is a good reason that the city allows so few of them. In 2018, New York City raised $1.775 billion thanks to the Transfer Tax, according to the Office of Management and Budget. The state of New York raised over $700,000,000 that year. As you can see, the NYS and NYC transfer taxes do their intended job of transferring big bucks out of people’s pockets and into government coffers.
Sometimes the New York City tax authorities, in their quest to fill city coffers, are enthusiastic in their pursuit of collecting Transfer Tax revenue. According to the Real Deal, a real estate trade publication, New York City’s Department of Finance sent out 5,600 Transfer Tax bills to people who had already paid it. While the city claimed it was all a mistake, some who received phone calls by the department threatening them with jail time or to have their salaries garnished weren’t so sure.
Can you avoid paying the transfer tax?
While it’s unlikely that property sellers will be asked to pay the Transfer Tax twice, there are a few exemptions where you don’t have to pay it at all. Here are some of them:
-If you are buying for or selling to a non-profit organization
-The property is used as collateral to secure a debt
-Buying for or selling to an international organization such as the UN. However, this organization must have the USA as a member
-Other government bodies that are exempt for some reason or another
Reducing the New York State Transfer Tax with a purchase CEMA
The only way to minimize the transfer tax for sellers is through the use of a purchase CEMA, which is also known as a splitter. A purchase CEMA functions like an assignment of mortgage with the buyer taking over and consolidating your outstanding balance with their new loan. This creates a continuing lien reduction and can reduce your overall transfer tax liability by the amount of your outstanding mortgage.
Ways to Offset the Cost of the NYC Transfer Tax
While it’s challenging to avoid the Transfer Tax itself, there are ways for buyers and sellers to mitigate the cost and lower overall costing costs, thus making the Transfer Tax bit less painful.
-For buyers purchasing a unit in a new development
Buyers are responsible for paying the Transfer Tax when buying in a new development condo building. Fortunately for them, New York City is currently experiencing a soft residential real estate market, particularly among new developments. According to Curbed, an online real estate news site, new condo sales in Manhattan were down 30% during the third quarter of 2018, as compared to the third quarter during the preceding three years.
This gives buyers significant leverage. Developers are desperate to offload their completed units. It’s expensive for them to carry the cost of these empty condo because they are paying for the monthly maintenance fees, taxes, and other expenses. Most developers do not like to reduce the price of their condos, but they sometimes will pick up a lot of the closing costs - including the Transfer Tax - to close a deal.
-Sell FSBO (For Sale By Owner) and offset Transfer Tax by reducing costly commissions
The median price of a condo or co-op unit in Manhattan is just shy of $1 million. That means a seller will pay roughly $60,000 in commissions to brokers and agents. Even reducing this by half may offset the cost of the Transfer Tax.
Instead of hiring a listing agent, sellers can list their property themselves for a small fee. It will appear in the MLS, or in Manhattan, the REBNY RLS, where all brokers and agents look for newly listed homes. Here at PropertyClub, we offer an assisted FSBO marketing platform where a seller can post their property and have it automatically syndicated and marketed on the relevant broker databases and over 30+ listing portals. Not using a listing agent will save a seller $30,000 on a $1 million condo.
Most buyers come with a buyer agent, so sellers may still have to pay 3% or $30,000 to them. However, some buyers come alone without a buyer agent. In those cases, the entire 6% or $60,000 remains in the seller’s pocket. This more than offsets the cost of both New York State and NYC Transfer Taxes.