You’re committed to a great NYC apartment, but as you know what you see is almost never what you get. You’ve got to pay these fun extra dollars called taxes, in almost all cases. Yes, this includes co-ops.
Some taxes are one-time fees and some are recurring. It’s good to understand where your money is going. Here’s a short property tax guide to all the different places your money can go:
- New York State Transfer Taxes
- New York State Mansion Tax
- New York City Transfer Taxes
- The “Flip” Tax
- Mortgage Recording Tax
- Property Taxes
What is a Transfer Tax?
Unless you’re the government or you’re inheriting property, someone — sometimes the buyer and most of the time, the seller — will pay to transact buying or selling a home in New York City. Other restrictions apply, too.
Federal Transfer Taxes
There are no federal transfer taxes. All real estate transactions, save mortgage interest deduction, are handled at the state and local level.
NY State Transfer & Mansion Taxes
This is the most complicated of the tax calculations. Hold on to your seats.
You’ll pay a tax to New York State for the privilege of buying “real property,” like a condo or one-to-three family home OR “interest in a corporation,” like a co-op. Based on the consideration amount (a fancy, legal term for purchase price), you’ll pay a different rate for each purchase. Here are some basics!
- You will almost always pay .04% of the purchase price to New York State at minimum. If the purchase price is $3 million or more, you’ll pay .065% — an additional .025%.
- If the purchase price is $1 million or more there’s an additional “mansion tax.” This tax starts at 1% and progressively increases to 2.9% for properties $25 million and over.
- If there’s a commercial component to your property (or it’s a 4-family home!), there’s some additional, confusing special rules, which you can find here. Consult a tax attorney and/or your agent for more clarification.
What are my state transfer tax and recording fees?
This is a unit in a co-op! If you purchase more than 50% of the shares related to this property (basically if you buy this unit) you’ll have to pay to register that you’re doing so (0.4% and 1.25% of $2,995,000, for state transfer taxes and the mansion tax, respectively). If the purchase price were just $5,000 higher, you’d pay an additional $7,500 in state transfer taxes and an additional $7,500 in mansion tax! You also have to register it with the city at a rate of 1.425% of $2,995,000. This can get expensive!
Sometimes you can include some of your closing costs in your mortgage — make sure to consult your mortgage professional to see if you qualify.
NYC Transfer Taxes
In addition to the state transfer tax, NYC imposes its own fee for the right to buy and sell property or controlling interest in a coop. The calculation is somewhat simpler:
For a residential property — including a 1-3 family home, a condo, or a co-op:
- Value < $500,000: 1% of the the consideration
- Value ≥ $500,000: 1.425% of the consideration
For all other property (for our purposes a 4 family home, which can qualify for a residential mortgage):
- Value < $500,000: 1.425%
- Value ≥ $500,000: 2.625%
It’s expensive to buy real estate in New York. For example, when Tishman Speyer bought Stuyvesant Town-Peter Cooper village in 2006 for $5.4 billion (that’s this big: $5,400,000,000, which is a lot of zeros) it was charged a “transfer tax of about $144 million! You will likely pay less.
A note on 4-family homes for NYC transfer tax (and ongoing property taxes):
Banks, non-government entities that can choose to enter into an agreement to lend money for the purchase of a home, will treat a 4-family primary residence as a residential transaction because the federal government will buy (some mortgages) loans that meet other criteria for a building with 4 or fewer units. New York City treats these buildings as commercial properties and taxes them as such. Caveat emptor.
What are my city transfer tax and recording fees?
This is a 3-family home! If you buy this unit you’ll have to pay to register that you’re doing so. In New York City, you’ll pay 1.425% of the purchase price, since this property is over $500,000. Remember you also have to pay New York State: $2 for every $500 of the purchase price under $3 million, or 0.4%. You won’t have to pay a mansion tax because the property is valued less than $1 million! (Good news!)
What is a Flip Tax?
A flip tax — probably better called a flip “fee” — is an additional cost some buildings impose on transactions. Whether a building can charge a flip fee and how much it costs is usually included in a building’s by-laws or proprietary lease documents. Some of these fees can be as low as 1% of the purchase price, but some can be as high as 20%! Definitely check with your broker or with a building representative if you have more questions about the flip tax.
What is a Mortgage Recording Tax?
Unless you’re buying a property with all cash, you’ll also have to pay a mortgage recording tax “for the privilege of recording a mortgage within the state.” In New York City, this is handled online at the city level for all parts of NYC except Staten Island, which must be handled in person at the Richmond County Clerk’s office.
In New York City you’ll pay this if you’re buying any home except a co-op. (This is one of the main reasons to buy shares in a co-op, rather than a condo or single family home.)
The rate is as follows:
1.8% of the loan for loans less than $500,000 or 1.925% for loans greater than $500,000. These rates include the recording tax for state records, too.
Often you’ll get a “Consolidation, Extension, and Modification Agreement, also called a CEMA. This is an extremely effective manoeuver to avoid paying to record a new mortgage. Essentially you’re taking over someone else’s mortgage (if you would have qualified for it on your own). If you’re taking on the current loan you won’t pay any additional mortgage taxes, but if you’re “extending” it (like the E in CEMA), you’ll pay only to record the difference. This can be a significant cost savings!
How much will it cost to record this mortgage in NYC?
This property is a condo. It will likely qualify for a jumbo mortgage, which can be slightly more expensive than a conforming, conventional loan in NYC. Assuming you borrow 75% of the purchase price, or $971,250, you’ll pay an additional $18,697 for the privilege of recording this mortgage in NYC, in addition to transfer taxes. If this unit were a co-op instead, you would pay $0!
How are property taxes calculated?
In New York City, you’ll pay taxes on your property annually, too. The rate you’ll pay is based on a few factors:
- What class your building is. Most of the time, your home will be counted as a Class 1 property, except, you guessed it, a 4-family home, which counts as a Class 2 property.
If we assume the city will value this property at its recent purchase price, and you take no exemptions or abatements, your yearly tax bill will be: $369,000 x 6% X 21.167% or $4,687, or $390 per month. You’ll likely pay slightly less than this if you qualify!
- The market value of your property. New York City values your property each year using lots of information the city gathers. There is a difference, sometimes, between what you paid for your property and how it’s valued, but a large one is rare, and you can likely file a request for review with the city.
- The assessed value of your property.
- For Class 1 buildings, this is usually 6% of the market value. Crucially, this value can only increase a max of 6% per year or 20% over 5 years.
- For Class 2 buildings, this is usually 45% of the market value or +8% from last year’s value. Like Class 1 buildings, the value can only increase a max of 8% per year, or 30% over 5 years. Because the city assumes that Class 2 buildings are supposed to produce income (rental units), there might be a disparity between 45% of the market value this year and +8% of the assessed value from last year, depending on your rent roll.
- Talk to your broker or tax professional about this for more information, or click here.
- The tax increase cap does not apply to physical alterations to the property that might affect the market value. They are assessed differently, and might cause your tax bill to spike temporarily.
- The tax rate. For Class 1 properties it’s 21.167% of the assessed value (not the market value). For Class 2 properties, it’s 12.473%. 4 unit property owners will pay a lower effective rate, but might pay more taxes because of the income-producing nature of this property!
- Exemptions and abatements you qualify for. Sometimes, you qualify for a reduction in the assessed value (an exemption) or a straight reduction of your tax bill (abatement). Check to see if you qualify here.
Where do my taxes go?
Contrary to popular belief taxes do not just disappear into thin air. The different taxes are used by their governments to fund different things at the state and local level. Services that everyday New Yorkers use. Here’s a handy chart from NYC to make you feel a little better about spending lots of extra money to find your dream home in New York City:
What kind of property do you want to buy? Find yours right now at Localize.City
Disclaimer: Localize.City does not provide tax, legal, or accounting advice. This post has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.