Effective July 1, 2019, as part of the New York State 2020 budget, the state Senate and Assembly will be adopted legislation increasing the real estate transfer tax on certain conveyances of real property.
Prior to the new law, New York State imposed a transfer tax on conveyances of real property located in New York State. The tax is currently imposed at a 0.4 percent rate on the sales price. The seller is typically liable to pay the tax, but if the grantor either failed to pay the tax or is exempt from the tax, the grantee is liable to pay the tax.
In addition to the foregoing transfer tax, New York State imposed a “mansion tax” at a 1 percent rate on the consideration for the transfer where the “residential real property” worth $1 million or more, For purposes of the mansion tax, residential real property generally includes a one, two or three-family house, an individual condominium unit, or a cooperative apartment.
Transfers of real property in New York City were also subject to New York City transfer tax at a 2.625 percent rate (or 1.425 percent if the property transferred is a one, two or three-family house or an individual residential condominium unit).
Changes to the Transfer Tax
The legislation increases the rate of the base real estate transfer tax from 0.4 percent to 0.65 percent in the case of a transfer in New York City of (i) “residential real property” where the transferred consideration is $3 million or more, and (ii) any other property subject to the tax where the transferred consideration is $2 million or more.
In addition to increasing the base real estate transfer tax rate on the type of transfers described above, the legislation also creates a new transfer tax on transfers of “residential real property” in New York City where the transferred consideration is $2 million or more. The new transfer tax is imposed in addition to the base real estate transfer tax and the mansion tax. For purposes of the new transfer tax, residential real property is again defined to include the same types of properties that are subject to the mansion tax. This new transfer tax is generally imposed on the grantee, and it is imposed at varying rates that are dependent on the amount of the transferred consideration.
As a result of the increase in tax, a grantee that receives residential real property in New York City worth at least $2 million will be subject to New York State transfer tax at a rate between 1.25 percent and 3.9 percent. The Real Deal, in an article dated April 2, 2019, provides examples of how the tax is calculated.
Although the legislation generally applies to transfers of real property made on or after July 1, 2019, the legislation does not apply to transfers made pursuant to a binding written contract entered into before April 1, 2019. However, the binding written contract must be confirmed by independent evidence. The legislation provides examples of independent evidence such as the recording of the contract or payment of a deposit.
The legislation has significantly increased the New York State transfer tax rate applicable to transfers of real property in New York City. Although the more punitive “pied-à-terre tax” was not enacted into law, the new legislation generally applies to any transfer of real property in New York City and is not limited to transfers of pied-à-terre’s. As a result of the new legislation, it is more important than ever for taxpayers to carefully consider the transfer tax consequences of different transactions.
The legislation, which was passed as an alternative to a pied-à-terre tax” that would have imposed an annual tax on homes worth $5 million or more that do not serve as a buyer’s primary residence, imposes additional New York State real estate transfer tax on certain conveyances made in “cities with a population of one million or more.” In light of the fact that New York City is the only city in New York State that has a population of anywhere close to one million or more, it is clear that the legislation was specifically intended to increase the rate of tax applicable to transfers of real property in New York City.