CPAs generally do not file property transfer tax returns (TP-584 series of forms), as these returns are most often prepared by the lawyers involved in the sale of the building. However, New York State’s 2019/2020 fiscal year budget made several important changes that CPAs should understand going forward. The changes will affect who may buy and sell real estate in the New York City area after June 30, 2019, although transfers made under a binding written contract entered into on or before April 1, 2019 may be exempt from the new provisions.
Tax liability of the mansion
Prior to any 2019 changes, land transfer taxes included a base tax of $ 2 for every $ 500, or a fraction thereof, of consideration. In addition, there was (and remains) an additional tax of 1% of the consideration or part thereof attributable to the residential building. This 1% tax only applies when the entire transfer is $ 1 million or more; this is commonly referred to as the “residence tax”. Base tax is paid by the seller (grantor) and council tax is paid by the buyer (concessionaire).
If the seller has not paid the base tax or is exempt from the base tax, the buyer is required to pay the base tax. In such cases, this tax is the joint responsibility of the seller and the buyer.
Submission to housing tax is similar with regard to default; if the buyer has not paid tax on the house or is exempt from the tax, the seller is obligated to pay tax on the house. Subsection (b) of Section 1402-a of the Tax Act has been amended to now include that when the seller has an obligation to pay tax on the house because the buyer has not paid, this tax is the joint responsibility of buyer and seller.
New basic and residence taxes
New York has encountered problems funding the upgrades needed for the Metropolitan Transportation Authority (MTA). The new transfer taxes could help raise money from people who own properties that benefit from the MTA subway system, but do not pay income taxes to the city or state of New York.
The new land transfer tax provisions now include an additional basic tax of $ 1.25 for every $ 500, or a fraction thereof, of consideration on each transfer of real estate or related interest in any New York City with a population of 1,000,000 or more (vs. York). The additional base tax applies to disposals of residential buildings of $ 3 million or more and to disposals of $ 2 million or more of any other property (eg, commercial buildings). As for the old basic tax, the liability to the new additional basic tax is the responsibility of the seller.
In addition to the additional base tax, New York also added a new additional progressive mansion tax of 2.9%, applied when the consideration exceeds $ 25 million. This now creates a maximum residence tax of 3.9% (1% + 2.9%) for buyers. Responsibility for additional tax is also paid by buyer.
Currently, New York City is the only city in the state with a population greater than 1,000,000 that will trigger the new basic transfer and additional residence taxes. For the purposes of the law on real estate transfer rights under Article 1402-a, “residential real estate” includes all premises used as a personal residence, such as a one, two or three-family house, an individual unit condominium or a cooperative apartment unit.
Buyer and seller, beware
CPAs will now need to know four elements of New York transfer tax when customers buy and sell property in New York: the old base tax, the new additional base tax, the 1% mansion tax, and the additional progressive tax on the manor house. . The new progressive additional tax is summarized in the Exposure.
New additional progressive tax
Changes to New York’s transfer tax system have an even deeper effect as homeowners plan to flee crowded areas, like Manhattan, to more suburban areas, due to the COVID-19 pandemic. It is important to note that these transfer taxes are not deductible as property taxes; instead, buyers will add them to the cost of the property, and sellers will use the expenses to reduce the amount realized on the sale. Real estate in New York is historically expensive, and CPAs should be aware of the additional taxes when advising clients who may be negotiating the price to buy or sell real estate.