What are the transfer taxes in a New York apartment sale?

February 6, 2017 | By Virginia K. Smith
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As one might expect of such a complicated financial transaction, the sale of a New York City apartment tends to come with numerous extra costs in tow, well beyond the actual price of the apartment and the broker's commission. And one major component of the so-called "closing costs" is an extra fee known as the "transfer tax," usually paid for by the seller.

"The transfer tax is a tax for property sold that is made up of a state tax and a local city tax," explains TripleMint agent Gina Ko. The New York state tax is 0.4 percent of the final sales price, while the city's transfer tax depends on the cost of the apartment. For apartments $500,000 or less, the city's transfer tax is 1 percent; for apartments over that amount, it's 1.425 percent.

On top of that, for properties over $1 million, the city charges an extra 1 percent transfer tax, a levy colloquially known as the "mansion tax" (though with the NYC market's high-end inventory, even studios in this city can be subject to a mansion tax, so the title is a bit of a misnomer). While the seller usually covers the standard transfer taxes, says real estate attorney Bruce Cohen, when it comes to the mansion tax, that expense is usually shouldered by the buyer. (Meaning that if you're purchasing an apartment that costs over $1 million, be sure to factor that 1 percent tax into the purchase price.)

Seems fairly straightforward, right? For the most part, it is. The one area in which this can get tricky is with new construction and sponsor sales, where it's more common for the buyer to pay all the transfer taxes, as we've written previously.

"The only thing to be aware of with transfer taxes is that if you buy from sponsor of developer, it’s standard that the purchaser picks up the seller’s transfer taxes," says Cohen. "It’s just custom. It could be negotiable, but in most buildings, it's not."

Additionally, if you're picking up the tab for the transfer tax, this will bring up your total taxable purchase price in the eyes of the government. "When the purchaser pays the seller's costs, the transfer tax is taken and added to the purchase price, then the transfer taxes are based off of that new, higher number," Cohen explains.

This can hit extra hard if the addition of the transfer tax brings your total purchase price over a million—and into mansion tax territory. For instance, if the original sales price is $990,000, and the buyer is paying the transfer tax—which, at 1.825 percent, would amount to a little over $18,000—that would bring the total sales price over $1 million, at which point the 1 percent mansion tax would kick in, as well.

(Consider this a negotiating tactic when you're making an offer, by the way. Depending on how coveted a property can be, suggesting a price that helps you avoid paying a mansion tax might be appealing.)

While it's certainly an extra financial burden to consider with sponsor sales or new construction transactions, the potential upside can still be worth it. Just be sure that you're going into the deal with a clear idea of the full closing costs, and who will be responsible for what.

Tags: Law, Tax