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Buying

What Is NYC Flip Taxes? And How to Avoid Flip Tax

Flip taxes are a foolproof method to raise funds for a building without incurring additional costs. It is a transfer fee that a buyer or seller pays the cooperative after selling or transferring an apartment. Additionally, flip taxes provide funds for capital improvements. Cooperatives and co-ops have to treat all shareholders equally to ensure the courts approve of the flip tax. Averagely, transfer taxes in NYC range between 1% to 3% of the building’s final sales price. Flip taxes are part of the building’s closing costs.

What Are the NYC Flip Taxes?

There are multiple flip taxes from which to choose. Carefully weigh the pros and cons of each flip tax before making a decision.

The flat fee and per share amount types of flip transfer taxes are similar. Both require that the cooperative sets a fixed flip fee for all shareholders. Also, the flat fee flip tax requires cooperatives to set a flat fee amount for all shareholders. The per-share amount requires shareholders to pay a fixed dollar amount per share.  This policy is beneficial to shareholders to a larger property and those who bought buildings years ago at fair prices. It is a total disaster for shareholders who have smaller buildings and those who bought buildings a few years ago. Nonetheless, it helps maintain a certain degree of order when calculating flip taxes. It is important to know that the flip tax is different from the NYC mansion taxes.

Percentage

The percentage of the sales price is not so different. Here, the cooperative demands a percent of the total amount made from selling the building.

Another method is the percentage of net profit. It is the most stressful method for cooperatives because it is not easy to calculate only the gain from selling a property. After which, they request a certain percentage of the amount.

The combining method is a less popular method cooperatives use to collect flip taxes. It requires combining two or more flip tax methods. Although it works, it is quite tedious.

Who pays the Flip Tax?

Sellers typically cover the cost of flip taxes. Nevertheless, buyers will pay if the cooperative demands the payment of this tax. Therefore, buyers have to carefully read through their real estate contract to know if the seller will pay the NYC flip taxes.

The amount a seller or buyer pays as flip taxes depends on how much the cooperative requires. Since there is no specific amount that cuts across all cooperatives, they demand different amounts. Some cooperatives make a higher demand if the seller sells the property at a high price. The goal is to add funds to the cooperative’s reserve funds.

Cooperatives can change their flip taxes by voting. Every shareholder has to vote before the board makes a final decision. They can only change the flip taxes if the majority agrees to it.

In summary, flip taxes are a fee cooperatives request for maintaining buildings without incurring additional costs. Family members may not pay house flip taxes depending on the cooperative’s policy. Seek the assistance of a real estate agent if you need clarification on your real estate contract.

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Buying Guide

NYC Transfer Tax Guide [2021]

The NYC Transfer Tax affects all transfers of cooperative shares or real estate property worth over $25,000 from one party to the next. Condos, single-family homes, and all other residential property are subject to this tax.

It is one of the most expensive parts of the closing costs of a transaction. It is also applicable to transfers of majority shares within corporations.

What is the NYC Transfer Tax Rate?

The NYC transfer tax depends on the sales price of the property or shares.

The NYC transfer tax is 1% if the sales price is below or equivalent to $499,999. For NYC, the transfer tax is 1.425% for properties with a sales price above $500,000.

Who Pays the Transfer Tax?

It depends on the deal between the buyer and seller. Generally, the seller is responsible for covering the NYC transfer tax. Some sellers put this forward to attract buyers and keep them glued. However, the buyer may end up paying the NYC transfer tax if tax authorities do not know the sellers’ whereabouts. For new development property, a buyer may pay this tax if the sponsor demands it. In this case, the buyer has to bring the cash at closing. Buyers cannot finance it through other methods.

What is the Reason for the Transfer Tax?

Generally, taxes play a role in increasing government revenue. No matter how small the figure may look initially, it all adds up. The NYC Transfer Tax helps fill government coffers. Tax payer’s money enables the government to achieve some of its goals and improve the city. New York City officials take the transfer seriously because the government has raised impressive amounts in previous years. Therefore, they do a thorough follow-up on the transfer tax and ensure the buyer or seller makes the complete payment. Failure to do so may attract dire consequences on either party.

How to Avoid Paying Transfer Tax?

Many people seek ways to either reduce the transfer tax payment or to avoid it. Here are some tips on how to achieve any of them.

  1. Assess Closing Cost

    Assess how much of the closing costs the developer of a new development building is willing to shoulder. You need this information because the buyer usually pays the NYC transfer tax for a new development building. However, a developer may pay the NYC transfer tax if they are desperate to get the property out of their hands.

  2. Seller Purchase of CEMA

    Sellers should purchase CEMA to minimize their transfer tax. Sellers can cut costs if they do not hire a real estate agent to put up their property for sale. They can put it up themselves on real estate platforms and still find buyers.

However, you can only avoid payment if you qualify for an exemption. You can be eligible for an exemption if you are using the property as collateral for a debt. Also, you are exempted if you are selling or buying the property for a non-profit organization. Government institutions may not pay the tax for various reasons. You are also eligible for an exemption if you sell or buy the property for some US affiliated international organizations.

To conclude, paying your tax is crucial. It would be best to learn more about all the taxes you need to pay to avoid getting in trouble with the authorities. Failure to pay taxes has severe consequences we all should avoid. Consult a real estate agent to get professional advice before buying or selling property in New York City.

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Buying Guide

What is NYC 421-A Tax Abatement?

Are you planning to invest in real estate in New York City? We guarantee that you’ll love the NYC 421-A tax abatement program, especially if you, like most people, are not a fan of taxes. So long as you are a property developer in NYC, you can easily get the NYC 421-A tax abatement, but your goal must be to offer affordable housing for the city’s residents. The program reduces your property tax bill for a specific duration. In most cases, it lasts for ten years, but yours could be 15 or 25 years, depending on the code it is registered with. For instance, codes 5117 and 5110 provide a ten-year term, while code 5114 comes with a 25-year period.

If you’d love to know more about the NYC 421-A Tax Abatement, read on!

We’ll start with the program’s history.

The History of the NYC 421-A Tax Abatement

The NYC 421-A Tax Abatement began in 1971. Its objective was to encourage NYC property developers to make the most out of underutilized land in New York City by investing in affordable residential buildings for families. The program prompted the construction of thousands of condos in Manhattan and other NYC boroughs. Today, the NYC 421-A tax abatement is still incredibly popular. The buildings benefitting from this tax abatement are twice as many as those with other property tax programs.

Home buyers will be delighted to know that the buildings they plan to purchase come with a 421-A tax abatement. Research all the essential information about this program because it has six codes, each offering a different property tax reduction percentage. Some people have often wondered if buying a building with an NYC 421-A tax abatement is an excellent idea. The answer to this is; it depends solely on the buyer’s preference.

What to Expect When Investing In a Property with a 421-A Tax Abatement?

A property with tax abatement is undoubtedly better than one without, but things could get a little complicated. For starters, expect most home sellers to sell apartments with a 421-A tax abatement at a higher cost upfront. They already know that you will spend a lot less on property taxes. While this might not be a problem for real estate investors with a high and flexible budget, those with low, tight budgets may not see it that way. You should always evaluate the home seller’s asking price for a property with tax abatement and the cost of one without. When that’s done, ask yourself the question; Is it really worth it?

When buying a house with tax abatement, you should also anticipate dealing with certain risks. A home seller could choose to sell their co-op or condo because the 421-A tax abatement period is close to expiring. If you purchase the property blindly, you might not enjoy the tax reduction benefits you hoped for.

After reading through this article and understanding the NYC 421-A tax abatement, you could take advantage of it as a real estate investor. The main advantage of purchasing a property with this tax abatement is that your property’s tax bill will be considerably reduced. Ensure that the apartment or condo you are buying is worth it. Before paying for the residential property, ensure that there are a good number of years left in the tax abatement. 

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Buying

New York City Mansion Tax Guide [2021]

Are you a potential homebuyer looking to purchasing a home or apartment in New York City? You must have heard of the NYC mansion tax, a closing cost that many property buyers in the city have incurred. Supposing that the residential property you wish to buy is worth more than $1 million, prepare to pay this tax, which dates back to 1989, the year this tax was created by former Gov. Mario Cuomo. The NYC mansion tax was meant to enhance the New York State’s budget, like all other taxes.

If you’re a first-time property buyer, it may all be a little confusing, but you need not worry. This guide provides essential information about the famous NYC mansion tax. Read on.

Who Pays the NYC Mansion Tax? And how much is it?

As a homebuyer, it is prudent to know the mansion tax you have to pay before becoming a legal homeowner in New York City. It helps you to manage your budget correctly. The value of your home determines the tax rates.

If your property’s cost is $1-$1.999 million, the tax rate is 1%, meaning that the tax amount will be $10,000. The percentage soars as your home’s value increases. For instance, should you be buying a house worth $20-$24.999 million, the NYC mansion tax rate will be 3.75%.

Remember that this tax is payable during the closing on your new home, but you can also pay it within the first fifteen days of closing. If you don’t do it by then, the home seller will also be in trouble.

After calculating the NYC mansion tax amount, you are required to pay, begin the process of paying it.

How to Pay the NYC Mansion Tax?

Since the NYC mansion tax is considered a real estate transfer tax, the necessary tax documents must be submitted together with the Form TP-584. The title company can hand in the filing on your behalf, regardless of whether you buy a condo or townhouse. If you are purchasing a housing cooperative (co-op), work with your real-estate lawyer when submitting your tax fillings.

How to Avoid Paying NYC Mansion Taxes?

The NYC mansion tax can be insanely expensive, especially for home buyers who have just enough money to purchase their new one or two-bedroom home. Like many others, you must be wondering if there is a way you can avoid paying this tax. Unfortunately, there isn’t. The law requires you to pay the NYC mansion tax to be a legal homeowner in the United States’ most populous city.

Even so, there are exemptions when it comes to homebuyers paying the NYC mansion tax. When a government body purchases a residential property, the organization doesn’t have to pay the tax. The same case applies to closings that are as a result of federal bankruptcy.

This guide aims to shed more light on the NYC mansion tax for homeowners looking to invest in your dream residential property in New York City. Make sure you pay the tax during the closing, or at most 15 days later. Otherwise, you and the home seller will be held responsible. It is worth noting that houses with a value of less than $1,000,000 are exempted from this tax.