A Guide On Transfer Taxes in NY Real Estate Transactions

Buying or selling real property comes with additional expenses, which must be factored into the decision-making process. Although there are several, we will examine the transfer taxes which New York City and the state can impose. Understanding them is critical because they have a direct impact on transaction costs. Buyers and sellers should know what they are, the different types of taxes, possible exemptions, and ways to minimize their tax liability.

The Different Types of Transfer Taxes

The two main types of transfer taxes that can be applied to real estate transactions are connected to city and state taxes. After broker commissions, these will typically be the second-highest closing cost. The New York State tax is calculated based on the property’s purchase price. The critical factor is whether the purchase price is above or below $3 million. If it is less than that, the tax rate is .4%, where most people will land. For properties that exceed that amount, the rate increases to .65%.

It is important to remember that New York City also imposes a transfer tax, but the numbers are different. The rate is 1% for properties below $500,000 and 1.425% for those valued above it. We are referring to Residential Type 1 and Residential Type 2 properties. Condos, co-ops, and 1-3 family houses land in these categories. Office, retail, and rental properties carry a higher tax burden.

New York State’s transfer tax is .4% for properties sold under $2 million, which increases to .65% if the price exceeds that amount.
The city’s taxes are significantly higher than the states. A sale price of >$500,000 equates to a 2.625% tax. 1.425% if it is <$500,000.

Breaking Down Exemptions

Although you may have heard that some sellers are exempt from paying transfer taxes, the odds are that they may not apply to you. The only people who do not have to pay them are government entities and non-profit organizations. When people buy newly constructed buildings, the developer will typically find ways of passing these taxes onto the buyer. Whereas there are exemptions to transfer taxes, they are limited. Buyers and sellers can speak to professional real estate attorneys to learn more about how they can reduce the tax burden.

A CEMA, for instance, is a Consolidation, Extension, and Modification Agreement. This is a type of loan that can reduce transfer taxes. A CEMA allows a buyer to assume the seller’s existing mortgage. Subsequently, it gets consolidated with the new loan. This is effective because the buyer will only have to pay the tax on the difference between the existing mortgage and the new loan. There’s no guarantee that this will play out in your favor, but it is a conversation to have with your attorney. The key is relying on your legal counsel and leveraging their understanding of real estate law.

Drucker & Mattia, PLLC

Many first-time buyers, and even experienced ones, can understand what gets factored into closing costs. Transfer taxes are a significant tax burden, and your real estate attorney is an invaluable resource when navigating these transactions. If you plan on buying or selling a home, the experienced attorneys at Drucker & Mattia are dedicated to helping you understand the process and the potential tax ramifications. Contact our office today to set up a free initial consultation.