Changes to New York State’s Real Property Transfer Taxes Become Effective July 2019
Sellers of real property in the State of New York are generally aware of the high closing costs imposed in the state, especially on property located in New York City when selling properties. After real estate commissions, transfer taxes are usually the second highest closing cost.
New York State imposes real estate transfer taxes on the seller of real property, or any direct or indirect interest in real property, when the consideration is greater than $500. The base of the tax is measured by consideration received which includes the selling price, mortgages, and other encumbrances that remain a lien on the property, and generally the assumption of any debt or obligation. New York State also imposes a so called mansion tax on transfers of residential real property but, unlike the transfer tax, the mansion tax is imposed on the buyer of the property rather than the seller.
New York City also imposes an additional real estate transfer tax when the consideration exceeds $25,000. New York City Transfer tax rates range from 1% to 2.625%, depending on the type and level of selling price.
In April of 2019, as part of the New York State 2020 Budget, the State Senate and Assembly adopted legislation that will increase real estate transfer taxes on conveyances of real property located in New York City on real property transfers occurring on or after July 1, 2019. However, they do not apply to conveyances made pursuant to a written binding contract entered into on or before April 1, 2019.
The new legislation is supposed to introduce a more progressive rate structure with higher-value transactions resulting in transfer taxes at increasingly higher rates. The changes to the state transfer taxes do not impact the New York City real property transfer taxes, which are still in place and were not increased.
Prior to the adoption of the new legislation, a transfer tax rate of 0.4% applied to all taxable conveyances of real property. Under the new legislation, this tax still applies. However, the new legislation effectively added an additional layer of transfer tax. In addition to the 0.4% tax, another 0.25% is added for conveyances of “residential real property” for consideration of $3 million or more, and conveyances of any other real property (i.e., multiunit or commercial) for consideration of $2 million or more. For commercial transactions under $2 million and residential transactions under $3 million, the New York State transfer tax rate remains at 0.4%.
The mansion tax also increased pursuant to the new legislation. Prior to the adoption of the new legislation, the applicable mansion tax rate was 1% of the total consideration. The new legislation keeps in place the original mansion tax of 1% but imposes an additional mansion tax on top of it, ranging from 0.25% on transfers for $2 million or more of consideration to 2.9% on transfers for $25 million or more of consideration.
While the mansion tax is imposed on the buyers by law, with the Manhattan sales market softening over the past few years and sales becoming increasingly sluggish, sellers may end up bearing the cost of the mansion tax hike in the form of more concessions and price reductions.
New York State also recently passed new sweeping rent laws for NYC tenants which may further exacerbate an already weakening real estate market in New York City. The new rent laws severely limit the ability of landlords to deregulate apartments as well as to raise rents on rent-controlled or -stabilized apartments in the city. As a result, this may force owners trying to sell buildings with rent controlled apartments to provide potential buyers with even more concessions and/or discounts to cover the higher cost of buying and operating rental buildings in New York City.