Prices for real estate in New York City have always been higher than most of the country. Even in the past few years, the real estate market in the five boroughs has been soaring. The higher the price, the higher the closing costs. For this reason, it is important to understand your closing costs. While there are many closing costs involved in a real estate transaction, this article will focus on transfer taxes, which comprises a large portion of closing costs.
Transfer taxes can be a confusing ordeal to understand to home buyers and sellers. Real estate transactions are complex and the tax ordinances are jurisdictional in nature. Counties and cities have become increasingly zealous in their efforts to collect transfer taxes, as they have become a major source of revenue for them. States, counties, and cities have unique regulations regarding taxes owed upon conveyance of real property.
When selling property in New York City, the parties will be responsible for paying New York State transfer taxes and New York City transfer taxes. Additionally, if the property is over $1,000,000, the buyer will be responsible to pay an additional lax, also known as the mansion tax. Below is an explanation of how these taxes are calculated.
New York State Transfer Tax
New York State imposes a real estate transfer tax on conveyances of real property or interests therein when the consideration exceeds $500. The New York State transfer tax is computed at a rate of $2 for each $500 of the consideration (price actually paid or required to be paid for the real property). Transfer tax is paid by the transferor (Seller)
For example: If the purchase price of the real estate is $500,000. The NYS transfer tax is $2,000, calculated as follows:
$500,000 / $500 = 1,000 x $2 = $2,000
New York City Transfer Tax
In addition to the NYS transfer tax, the Seller is also obligation to pay the New York City transfer tax upon the conveyance of real estate. NYC transfer tax on residential property is computed as follows:
If the value of the residential real estate is $500,000 or less the rate is 1% of the purchase price. If the value is more than $500,000 the rate is 1.425%.
For purposes of real estate taxes, Residential Property is considered a 1-3 family home, co-operative, or condominium.
What is a Mansion Tax?
An additional tax is imposed on each conveyance of real property or interest in real property used in whole or in part as a personal residence when the consideration for the entire conveyance is $1 million or more. The additional tax is computed at a rate of 1% of the consideration, or part of the consideration, attributable to the residential real property. The Buyer pays this additional tax.
For example: If the purchase price of the home is $1.1 million, the buyer is responsible for paying $11,000 in mansion tax in addition to the NYS and NYC transfer taxes paid by the Seller. Therefore, the total amount owed in this scenario is:
NYS Transfer Tax (Seller)- $1,100,000/ 500 = 2,200 X $2 = $4,400
NYC Transfer Tax (Seller)- $1,100,000 X 1.425% = $15,575
NYS Mansion Tax (Buyer)- $1,100,000 X 1% = $11,000
New York State Department of Taxation and Finance has consolidated the Frequently Asked Questions on Mansion Tax in Publication 577
It is important to note that certain conveyances are exempt from Real Estate Transfer Taxes.
For more information regarding New York State and New York City transfer taxes, mansion tax, exemptions and/or related real estate issues, contact Sergey Kalantarov, Esq. of Kalantarov Law, PLLC by calling (718) 425-4162.