Obviously, a pied-à-terre tax on second homes is being removed and a property transfer tax on high value sales is in place.
Amid state budget negotiations, Gov. Andrew Cuomo said in a radio interview on Tuesday that lawmakers were moving away from the pied-à-terre in favor of a transfer tax on the purchase of real estate valued at more than $ 5 million, a move to help fund the Metropolitan Transportation Authority. In the Assembly’s budget resolution, the tax is proposed statewide on all high-priced real estate sales, rather than New York City alone. However, state lawmakers recently said a transfer tax would apply to the same targets as the pied-à-terre tax: condos and co-ops.
Assembly Speaker Carl Heastie appeared to confirm the change when he told reporters the pied-à-terre had encountered obstacles, including difficulties in implementing it without a broader reform of assessments of New York’s property tax and concerns from business and real estate managers who have asserted the tax could damage an already weakened luxury real estate market in New York City.
What is a transfer tax?
A transfer tax is a one-time tax imposed on the transfer of ownership, usually paid by the seller. New York City and New York State already have one. Statewide, tax is imposed on any transfer of ownership over $ 500 at a flat rate of $ 2 for every $ 500, or 0.4%. In New York City, tax is imposed on any transfer of residential property valued at $ 25,000 or more at a rate of 1%. However, unlike the state level, the city charges a higher rate, 1.425%, on residential real estate valued at over $ 500,000. For all other real estate, such as commercial properties, the rates are higher, taxing sales values below $ 500,000 at 1.825% and above $ 500,000 at 3.025%. Additionally, the city also imposed what it calls a 1 percent home tax on sales valued at over $ 1 million, usually paid by the buyer.
So what’s different with this new one?
Details on the proposed new transfer tax remain scarce, but lawmakers have said it will apply to the sale of real estate valued at $ 5 million or more on top of the existing transfer tax. The Wall Street Journal reported that lawmakers are also considering applying the new tax to sales of $ 3 million or more, with a rate hike to $ 5 million. While details are still being negotiated, the Assembly’s budget resolution proposes a 0.3% tax rate for properties between $ 5 million and $ 10 million, with incremental increases of up to $ 1.5 million. % for sales over $ 1 billion. Heastie said he would raise between $ 300 million and $ 400 million a year. That estimate is well below the $ 650 in annual revenue that New York City Comptroller Scott Stringer predicted that a pied-à-terre tax would bring in.
Why the change?
According to Heastie, the annual pied-à-terre would be too difficult to administer, with the transfer tax offering a much easier alternative. A stone-and-earth tax has never been implemented in the United States, so there is no national precedent to follow and would likely further complicate the city’s already opaque property tax system. It would also require the city to put in place a whole new valuation system to determine market rate values. Members of the real estate and business community, as well as tax watchdogs, have warned that the pied-à-terre tax could deter potential buyers from investing in New York City real estate. which would cost New York City property tax revenues and hurt the market. Andrew Rein, chairman of the Citizens Budget Commission, said a transfer tax would have less of a negative impact than pied-à-terre on the city’s luxury housing market. “The transfer tax, certainly, given all the considerations of whether to raise taxes, it would be preferable to a pied-à-terre tax in general,” Rein said.
Does the transfer tax fulfill the same objectives as the pied-à-terre?
No, the transfer tax would not serve the same non-commercial objectives as the taxation of second homes. These include discouraging non-residents from purchasing second homes, thus leaving apartments available for city residents, encouraging landlords to list the property as their primary residence to avoid the foot tax. ashore, but to allow their income to be taxed in New York, and perhaps induce some landlords who never use the property to rent it out to full-time residents to defray the cost of the tax.
It was also supposed to force the wealthy investor-buyers – who take advantage of the vitality of the city and its public infrastructure as a boon to their wealth, without contributing too much in taxes if their building was built with an allowance – to contribute to pay for the city’s needs. Instead, land transfer taxes will fall primarily on actual residents who already pay income, sales, and property taxes.
Moreover, for supporters of a pied-à-terre tax, reducing runaway price inflation in the city’s real estate market and potentially scaring off super-rich buyers was part of the problem.
EJ McMahon, policy director at right-wing think tank Empire Center, argues that the land transfer tax can still have the latter effect – a boon for advocates for affordable housing and a disadvantage for conservatives and real estate interests. Any new tax that targets luxury housing could have a deflationary effect in this market, especially with the effects of the Republican federal tax law’s new cap on state and local tax deductions. “None of them are as dire as (lawmakers) describe them,” McMahon said.
McMahon also said that while there are some problems with pied-à-terre, a transfer tax would have others. As the tax is not annual and its revenue projections are based on a healthy real estate market, it is very volatile. It is therefore a poor candidate for dedicated tax obligations, an essential way for the state to use tax revenues to invest in improving infrastructure.
Ron Deutsch, executive director of the Left Fiscal Policy Institute, disagreed with opponents, saying anyone with the money to buy luxury apartments and condos is unlikely to be deterred by the prospect a new relatively low tax. “When you’re at that income level, I really don’t think you worry too much about the taxes you’re going to pay on a $ 238 million property,” Deutsch said, referring to the property recently purchased by Kenneth Griffin. which revives the debate on the pied-à-terre. He also doesn’t believe that the volatility of a transfer tax would have much of an effect on annual income. Deutsch added, however, that while he believes both taxes should be enacted, if the state imposes only one, the pied-à-terre would be preferable because it explicitly targets non-residents who do not. do not contribute as much to the local economy as residents.