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.
- 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.
- 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.