Understanding Transfer Taxes in New York Real Estate Transactions

When buying or selling real estate in New York, most people expect to pay for down payments, mortgage costs, attorney’s fees, and broker commissions. What sometimes comes as a surprise are the transfer taxes. These are fees paid to the government when ownership of real property changes hands. These taxes can add tens of thousands of dollars to a deal, depending on the property’s value and location. In this article, we explain how transfer taxes work, who pays for them, and how they are calculated.

What Are Transfer Taxes?

A transfer tax is a fee imposed by the state or a local government on the conveyance of real property. In New York, transfer taxes generally fall into two main buckets: state and city. Depending on where your property is located, you may encounter one or more of these at closing.

State Transfer Taxes

At the state level, New York charges a real estate transfer tax of 0.4% of the purchase price (that’s $2 for every $500 of consideration) on almost every property sale. On top of that, if you’re buying a home priced at $1 million or more, you’ll run into the famous Mansion Tax. Originally introduced as a flat 1% surcharge, the Mansion Tax is now structured on a sliding scale, starting at 1% for homes between $1 million and $1.999 million and rising as high as 3.9% for properties valued above $25 million. This makes it one of the most significant costs in high-value real estate transactions.

For instance, a $950,000 home in Westchester would only owe the standard state transfer tax. But a $1.2 million condo in Manhattan would trigger the Mansion Tax as well. If you’re buying something like a $10 million townhouse in Brooklyn, you’d face both the state tax and a higher Mansion Tax rate because of the luxury price.

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City Transfer Taxes

If the property is in New York City, you also face the Real Property Transfer Tax (RPTT). The rate depends on whether the property is residential or commercial and whether the price is above or below certain cutoffs. Here is a simple breakdown:

• Residential properties under $500,000: 1%

• Residential properties $500,000 and above: 1.425%

• Commercial properties under $500,000: 1.425%

• Commercial properties $500,000 and above: 2.625%

In short, property purchases in New York City involve a stacking effect of taxes: the state transfer tax, the Mansion Tax (for sales of $1 million and above), and the city’s RPTT. Outside NYC, only the state transfer tax and Mansion Tax apply.

Who Pays Transfer Taxes?

Who actually pays the transfer tax depends on both state law and the terms of the sales contract.

In New York, the general rule is that the seller is responsible for paying transfer taxes at closing. This is outlined by the New York State Department of Taxation and Finance. That said, there are exceptions. Sometimes a sales contract will shift the responsibility to the buyer, either fully or partially. This can happen in competitive markets like New York City, where sellers have more leverage, or when a buyer agrees to cover the tax as part of the negotiation.

There’s also a fallback rule where if the seller doesn’t or cannot pay, the buyer becomes liable for the tax. In that situation, the buyer may later have the right to recover the money from the seller, but they’d still have to cover the amount upfront to close the deal.

Exemptions and Special Cases

Not every property transfer in New York comes with a tax bill. The law makes exceptions for certain situations, such as:

• Government transfers: Deeds going to or from the federal government, New York State, or local governments aren’t taxed.

• Nonprofits and religious groups: Transfers to charities or religious organizations are usually exempt.

• Business reorganizations: When companies merge or move property between related corporations, those transfers may be excluded.

• No payment involved: If the property changes hands as a gift with no money paid, the tax may not apply. But if the new owner takes on an existing mortgage, the state counts that as payment, so tax could still be due.

Why Does This Matter for Buyers and Sellers?

For sellers, transfer taxes cut into the money you actually take home. That is why it is smart to run the numbers on your closing costs before you sign a contract. Many sellers skip this step and end up surprised when they see the deduction at closing.

For buyers, even though the state and city transfer taxes are usually on the seller’s side, you are still responsible for the Mansion Tax if the home costs a million dollars or more. In some deals, buyers also agree to cover part of the seller’s taxes as part of the negotiation. For more expensive properties, this can add a big chunk of cash on top of your down payment and other closing costs.

At the end of the day, knowing who pays what is not just about money but also about avoiding legal headaches. Your contract should spell out clearly who is on the hook for each tax. If it doesn’t, you could be in for an unpleasant surprise on closing day.

Strategies to Minimize the Impact

Transfer taxes can feel like an extra burden at closing, but there are a few ways to keep them from catching you off guard:

• Think about how the deal is structured. Sometimes, the way a property is transferred makes a difference. In special cases, like transfers within a company or between related parties, there may be exemptions available.

• Pay attention to timing. Tax laws do change from time to time. Knowing if a new rule or rate is around the corner could save you money, depending on when you close.

• Make sure the numbers are right. Transfer taxes are based on the property’s value. If the sale price or mortgage details aren’t reported accurately, you could end up paying more than you should.

• Get professional advice. These rules can be confusing, especially when state and city taxes overlap. A good attorney or tax professional can help you understand your options and make sure everything is handled correctly.

Transfer taxes in New York can be complicated, and mistakes often lead to costly surprises. At Curcio Law, we make sure your obligations are clear and handled correctly from the start. Whether you’re buying, selling, or transferring property, our team protects your financial interests. Schedule a consultation with us, and we’ll guide you through your next real estate transaction.