Updates on Property Taxes in New York city

[James Taylor]

Ok,  so a couple of friends asked me to copy and paste here what I uploaded in my LinkedIn, instead of providing the link so here it goes.... 

New York Mansion Tax UPDATE

• Published on April 9, 2021

Taxes in NYC could be really tricky and complicated, especially for Real Estate. You might have heard about the "Mansion Tax" before, but it is not just a tax applied to a sales price, it can be tricky, you might fall into a "miscalculation" and end up paying it, even if you think you could avoid it by buying just under the $1,000,000 mark.

Let's learn from those who really know. I would like to share with you a full article about this. It is the best explanation I have seen for very long time.

According to the latest article published by Neil B. Garfinkel, REBNY Broker Counsel, Partner-in- charge of real estate and banking practices at Abrams Garfinkel Margolis Bergson, LLP. When answering a question about the New York Mansion Tax updates.

>> "The Mansion Tax is a fee paid by domestic and foreign purchasers of residential property (defined as a single-family home, condominium, or co-op) in New York State, when the total “consideration” is One Million ($1,000,000.00) Dollars or more. Throughout the State of New York, Mansion Tax is 1% of the total “consideration.” However, Mansion Tax is calculated differently in New York City and other cities within the state that have a population of at least one million people. New York State enacted revenue legislation effective July 1, 2019, which increased the Mansion Tax rates in these municipalities (currently only New York City meets the population criteria) using a gradual sliding scale based on the total "consideration amount”.

New York City Mansion Tax Rates for 2021

• 1.00% for purchases $1,000,000 to $1,999,999
• 1.25% for purchases $2,000,000 to $2,999,999
• 1.50% for purchases $3,000,000 to $4,999,999
• 2.25% for purchases $5,000,000 to $9,999,999
• 3.25% for purchases $10,000,000 to $14,999,999
• 3.50% for purchases $15,000,000 to $19,999,999
• 3.75% for purchases $20,000,000 to $24,999,999
• 3.90% for purchases $25,000,000 or greater

>> Now Pay attention here. This is where it gets tricky<<<

Neil explained that, New York State Tax Law defines "consideration" as the price actually paid or required to be paid for the real property. This amount corresponds with the "amount of consideration for conveyance" listed on Schedule B, Part II, Line 1 of the New York State Real Property Transfer Tax Form TP-584 ("the TP584").

[I wanted to share a copy of the relevant portion of the TP-584, but unfortunately I couldn't find the way to do it in LinkedIn publishing]

If the total consideration for the property (as it appears on the TP-584) is for anything less than $1,000,000.00, the purchaser will not have to pay the Mansion Tax. Thus, if the total consideration for the apartment is $999,999.00 the purchaser does not have to pay the Mansion Tax on the sale.

Tax Implications for Purchasers Who Agree to Pay the Seller’s Transfer Taxes

Nonetheless, determining whether the Mansion Tax applies to a particular transaction is not as simple as ascertaining the purchase price for the property. If the purchase price of residential property is less than $1,000,000.00, a purchaser may still have to pay the Mansion Tax because of what is known as "grossed up consideration." In New York, the consideration in a real estate transaction is "grossed up" (increased) if a purchaser agrees to pay the seller’s transfer taxes on the transaction. In this scenario, the transfer taxes that the purchaser has agreed to pay are added to the purchase price as part of the total consideration.

Accordingly, real estate brokers should be aware of the transfer tax implications when the purchase price approaches $1,000,000.00 and the purchaser agrees to pay the seller’s transfer taxes. In such a scenario, the grossed-up consideration could increase the total consideration to exceed $1,000,000.00, thereby implicating the Mansion Tax.

In New York City, real estate transactions are subject to both the New York State and New York City transfer taxes. The New York State transfer tax is 0.4% of the total consideration. The New York City transfer tax is 1% of the total consideration if the sale is for $500,000.00 or less and 1.425% of the total consideration for sales greater than $500,000.00.

Example of a Purchaser Assuming Responsibility for Paying the Seller’s Transfer Taxes

If the purchase price of an apartment is $999,999.00 and the purchaser agrees to pay the seller’s transfer taxes, then the purchaser will be responsible for an extra $3,999.99 in New York State transfer taxes (0.4%) and an extra $14,249.99 in New York City transfer taxes (1.425%). If the purchaser has agreed to pay the seller’s transfer taxes, the combined $18,249.98 of transfer taxes is added to the purchase price and the total grossed up consideration amount is $1,018,248.98. Thus, the purchaser would have to pay the Mansion Tax on this transaction because the total consideration exceeds the $1,000,000.00 threshold. The Mansion Tax in this example is based off the grossed-up number $1,018,248.98, which falls in the 1% tax range on the NYC Mansion Tax scale. The purchaser will pay $10,182.49 for Mansion Tax at closing.

Important Tip:

If the purchaser agrees to pay the seller’s transfer taxes, the transfer taxes will be re-calculated using the "grossed up" consideration amount, rather than the original purchase price. Thus, in the example above, the transfer taxes would be recalculated using the grossed-up amount of $1,018,248.98. This equates to $18,583.04 in combined New York State and New York City transfer taxes. <>

I hope you found this as valuable as I did.....