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The New York Real Estate Transfer Tax

Our great State of New York uses a wide variety of means to generate income. As we’ve seen, there’s state income taxes, sales taxes, specialized surtaxes, corporate taxes and others. Just when you thing the list couldn’t grow longer, there’s yet another tax to discuss.  In this post, we discuss the New York Real Estate Transfer Tax  (or RETT). The Real Estate Transfer Tax is a specific type of excise tax.  It’s paid when there is a transfer of title to New York from one owner to another. Transfer taxes of this sort are quite common.  In Colorado, for instance, there is a transfer tax of $0.01 per $100 (of the sales price). Most states in our nation impose some type of transfer tax or recording tax on the transfer of real property.  Certain states, however, have no such tax. Utah is a good example.

In this post, we will discuss the basic structure of the RETT.  We’ll then discuss certain issues pertinent to this tax. The RETT is a rather modest fee in the majority of cases.  It can, however, be sizable depending on the sales price of the real estate being transferred. For now, though, we will limit our discussion to the RETT for New York State.  In the future, however, we will return to the broader topic and discuss the other real estate excise taxes which can apply beyond the RETT.  We’ll look into taxes such as the New York City transfer tax.  We’ll also tackle the New York State mortgage recording tax.  Later on, we’ll look at the nuances of the New York City mortgage recording tax as well as others. 

Real Estate Transfer Tax Rate Structure 

The rate structure for the RETT is very straightforward.  When there is a transfer of title to real property in New York, there is a tax of $2 for every $500 of the sales price.  Locals generally call it $4.00 per thousand.  That’s a misnomer, however.  Add the extra $2.00 for the last fraction above the last thousand and you’ll be spot on.

An additional 1% of the gross sales price applies whenever the residential price exceeds $1 million, this is the so-called “mansion tax.” So, the tax isn’t triggered if the sales price doesn’t exceed $500, and the additional 1% mansion tax, is only applied under certain circumstances. Also, the full amount owed in real estate excise taxes may be more depending on the particular locale.  All, in all, it’s location specific.

The base (i.e., non-mansion tax) RETT is paid by the seller. But, it’s important to be aware that liability shifts to the buyer if the seller is either unable to pay the tax or is exempt from paying the tax. Responsibility to pay the additional 1% mansion tax lies with the buyer. But, as with the base RETT, there are circumstances when the liability switches to the other party.  Those happen when the original party either cannot pay or is not required to pay.  That’s usually due to application of a special provision or exception. 

Form TP-584

To pay the tax, the party owing the tax should file Form TP-584. It’s known as the Combined Real Estate Transfer Tax Return, Credit Line Mortgage Certificate, and Certification of Exemption from the Payment of Estimated Personal Income Tax. The form is signed by both the seller and buyer.  The tax is due no later than the 15th day after title has been transferred. As a practical matter, the tax must be paid when the deed is recorded, as the county clerk’s office will not accept the corresponding deed for recording without the payment.

Real Estate Transfer Tax Exemptions 

Under New York State tax law, certain types of real estate transactions are exempt from the RETT. New York tax law provides a comprehensive list of instances in which a transaction won’t trigger the tax.  You can find it at Section 1449-EE.  For example, the State of New York, along with all of its various agencies, etc., is exempt from paying the tax.  Not surprisingly, that’s no matter what type of transaction occurs.  Likewise, the United Nations and all of its instrumentalities are exempt as wel.  Same with any agency owned by the federal government. 

Exemptions From The Tax

New York law also provides a list of specific conveyances of real estate which are exempt from the tax. These include conveyances which amount to a bona fide gift.  Also conveyances which are used to secure a debt or other financial obligation.  Same with those which  merely change the form of ownership, instead of its underlying structure.  Or those conveyances which are made in connection with a tax sale.  Point being, these and many other types of conveyances are all exempt under New York State law.

As an example, suppose a partnership converts to a tenants-in-common ownership structure.  In our example, the proportionate ownership interests are maintained throughout the transaction.  Under this scenario, the Real Estate Transfer Tax would not be triggered. 

Section 1031 Exchange Context 

Interestingly, there was a special 2016 Advisory Opinion on point.  The New York State Department of Finance and Taxation was the author.  In it, the State of New York announced that the Real Estate Transfer Tax will not be triggered in “reverse” Section 1031 exchanges. As we’ve discussed before, reverse Section 1031 exchanges involve the acquisition of replacement property before the disposition of relinquished property.  To effect this transaction, the facilitator must create a holding company (in the form of a single member limited liability company).  It exists to temporarily hold title to the replacement property. Significantly, the State of New York ruled on this type of acquisition of replacement property by the holding company.  It was not a normal “conveyance,” thus, it should not trigger the RETT.  

NYC Tax Attorneys

The lawyers at Mackay, Caswell & Callahan, P.C. stay busy to keep on top of all tax developments and issues which affect New York. As we’ve seen, this means that our attorneys and staff have to grapple with some fairly convoluted statutes and rules.  These include the New York Real Estate Transfer Tax.  Nonetheless, we spend the time and effort because we know that it brings value to our clients. If you have a tax issue and are in need of a top New York tax attorney, call.  Don’t hesitate to give one of our people a chance and we’ll get you the service you need. 

Image credit: Sam Valadi