A guide to New York transfer taxes, mansion taxes, and flip taxes
For buyers, New York State levies an additional tax on properties statewide valued at $1 million and up—the mansion tax—with rates starting at 1 percent.
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It’s well-known that New York City has substantial closing costs for sellers, especially transfer taxes. But buyers can also wind up paying thousands (in some cases, tens of thousands) in transfer taxes.
“After broker commissions, transfer taxes are one of the largest closing costs in a real estate transaction,” says Thomas Kutzman of Prevu Real Estate, a tech-enabled brokerage that offers buyers and sellers a rebate of up to 2 percent of the sale price, effectively offsetting some or all of the transfer taxes.
There are a lot of things to understand about transfer taxes. For starters, they’re levied by both New York City and New York State (though at different percentages). New York State also imposes an escalating mansion tax on properties over $1 million. On top of that, many co-ops these days impose a so-called “flip tax” on each apartment sale.
Below, a guide to NYC and NYS real estate transfer taxes.
New York City transfer tax and New York State transfer tax
In resales, the New York City real estate transfer tax, formally known as the Real Property Transfer Tax (RPTT), is paid by the seller. If the value of the property is $499,999 or less, the tax is 1 percent of the purchase price. For properties sold at $500,000 and up, the tax rises to 1.425 percent.
Multi-unit dwellings, meanwhile, have even higher rates: 1.425 percent for properties valued at $499,999 or less, rising to a whopping 2.625 percent for those sold at more than $500,000.
Then there’s the New York State real estate transfer tax. It’s calculated at a rate of two dollars for every $500, or fractional part thereof (essentially 0.4 percent of the sale price) and is also paid by the seller. This rate increases to 0.65 percent for residential transactions greater than $3 million (effective July 1, 2020, based on the New York State budget passed on March 31, 2019).
As an example, the seller of a $1.5 million co-op or condo in New York City would pay $6,000 in New York State transfer taxes and $21,375 (1.425 percent) in NYC transfer taxes.
Things change a bit when it comes to brand new condos. Here, it is customary for the buyer in a new development to pay the transfer taxes for the developer—adding $27,375 to your closing costs for a $1.5 million purchase. But that’s not necessarily the end of the story.
“In a buyer’s market like this, our agents help many Prevu clients successfully negotiate for the developer to pick up the tab for these transfer taxes,” says Prevu’s Kutzman. “Developers would often rather pay more in transfer fees than lower the selling price of the unit, which could affect future sales prices of other units in the building.”
The mansion tax
For buyers, New York State also levies an additional tax on properties statewide valued at $1 million and up—the mansion tax—with rates starting at 1 percent. These rates were revised for fiscal year 2020, and the mansion tax for properties over $2 million went up.
In NYC, the mansion tax required by New York State for properties between $1 to $2 million remains at 1 percent. But the new rates will rise incrementally with purchase prices of $2 million or more, starting at 1.25 percent and capping out at a total of 3.9 percent for properties sold at $25 million or above. For example, if you are purchasing a condo or co-op for $2.5 million, you will have to pay the New York mansion tax at a rate of 1.25 percent, or $31,250, in addition to the other closing costs associated with your purchase.
Flip taxes
If you’re buying or selling in a co-op, there’s one other transfer tax to be aware of: the flip tax. It’s not technically a tax at all: It’s a transfer fee imposed by the co-op building every time a unit is sold..
Originally designed to deter people from flipping a unit—which can have an unpredictable effect on a building’s finances or sense of community—“flip taxes are a popular way for co-ops to generate revenue without increasing carrying charges or levying a special assessment,” says Prevu’s Kutzman.
Paid by either the buyer or the seller, depending on the co-op, flip taxes typically range from 1 to 3 percent of the sales price, and can be calculated in various ways: as a one-time fee, as a percentage of the sales price, as a set dollar amount per co-op share owned, or as any combination of these structures.
(Larger flip tax fees of up to 20 percent of the sale price are typically reserved for units in restricted-sale buildings, which are designed to be an affordable housing option for limited-income buyers. Should a buyer of one of those units then flip it at a market rate, they would make a huge windfall. The tax is a way for the co-op to share in the upside.)
How to offset closing costs
The easiest, most straightforward way to offset transfer taxes, mansion taxes, and flip taxes is to work with a real estate broker offering a commission rebate. “It’s the single most important topic that traditional real estate brokers aren’t telling you,” says Prevu’s Kutzman.
A typical sales commission is 5 to 6 percent of the sales price, paid for by the seller. If a buyer is working with their own broker, the commission is split between the buyer's and seller's brokers, with each broker netting about 2.5 to 3 percent of the purchase price.
“At Prevu, we rebate two-thirds of the commission paid to the buyer or seller’s broker upon closing, up to 2 percent of the purchase price," explains Kutzman. "So on a $1 million co-op with a 6 percent commission split between the buyer and seller's brokers, that works out to a 2 percent rebate of the sales price, or $20,000—enough to offset both a 1 percent mansion tax and a 1 percent flip tax. And your Prevu agent will be there with you every step of the way, just like an agent from a traditional brokerage.”
Prevu is a digital home buying platform that enables you to search, offer, and save up to 2 percent when you buy. Learn about Prevu’s Smart Buyer Rebate or browse apartments in your favorite NYC neighborhood.
Disclaimer: This material was provided for informational purposes only, and is neither intended to provide, nor should be relied upon as tax, legal, or accounting advice. Prevu and its subsidiaries do not provide tax, legal, or accounting advice. You are encouraged to consult your personal tax, legal, or accounting professionals before considering any transaction as your individual situation may vary.
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