The NYS and NYC Transfer Tax

The PropertyClub Team
Mar 9th 2019
Buyers and sellers of townhouses, co-ops or condos in New York City have the unenviable obligation of paying multiple transfer taxes. First, the state picks your pocket with the NYS Transfer Tax, then the city takes its pound of flesh with the NYC Transfer Tax, and finally, there’s the so-called Mansion Tax, which is also technically a transfer tax. The Mansion Tax, strangely enough, applies to units that can measure 500 square feet or less. Only the little people in Gulliver’s Travels would consider that a “mansion”.

NYC Transfer Tax

The Transfer Tax was introduced back in 1959. In those days it was only 0.5% of the sales price. Today, the city applies a 1% tax on properties sold for less than $500,000. Properties sold for over $500,000 are subject to a 1.4% tax.

NYS Transfer Tax

The state of New York also applies a 0.4% transfer tax on all properties. 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 went for over $500,000. The only way not to pay this tax, with a few exceptions noted below, is if the property sold for less than $500. About the only house going for $499 in New York City would be a dog house. 

Buyers, Make Sure the Seller Doesn’t Skip Town

Sellers are responsible for paying the 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.

Under those circumstances, buyers should be prepared to call Dog the Bounty Hunter.

Transfer Tax: A Big Money Maker 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 overzealous 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.

The Few Ways to Weasel Out of the Transfer Tax

While its unlikely 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 U.S. as a member

-Other government bodies that are exempt for some reason or another

Ways to Offset the Cost of the Transfer Tax

You can’t really avoid the Transfer Tax itself. However, 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 great leverage. Developers are desperate to offload their completed units. It’s terribly 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 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.