On April 12, 2019, New York Governor Andrew Cuomo signed New York's 2019-2020 budget into law. One section of the new law will increase the transfer tax rates that apply to real estate transactions in New York City. The combined New York State and New York City transfer tax rates may approach 6% of the sales price for some residential transactions.

The new transfer tax rates are effective for property transfers on or after July 1, 2019. There is a limited grandfathering rule that exempts transfers made pursuant to a binding written contract entered into before or on April 1, 2019, provided that the contract's execution date is confirmed by a recording of the contract, payment of a deposit, or other independent evidence.

Introduction

New York State (NYS) and New York City (NYC) both impose transfer taxes on real estate transactions. Before the new law, there were three different transfer taxes on transactions of “residential real property,” which generally includes a one-, two-, or three-family house, an individual condominium unit, or a cooperative apartment unit. Multifamily properties with four or more units are considered non-residential real properties and are subject to different tax rates discussed below.

The three transfer taxes for residential real property under prior law were:

(1) The NYS transfer tax of 0.4% of the total consideration for NYS property,

(2) The NYS additional transfer tax (sometimes called the “mansion tax”) of 1.0%, if the consideration is $1 million or more for NYS property, and

(3) The NYC transfer tax of 1.0% for consideration of $500,000 or less, or 1.425% if the consideration is more than $500,000, for NYC property.

As a result, for NYC residential real properties, the tax rates under prior law for different levels of consideration were as indicated in Chart 1:

The consideration is generally the gross sales price of the residential real property, though sometimes reduced by any continuing mortgages on the property. The NYS and NYC transfer taxes are legally imposed on the seller, while the NYS mansion tax is legally imposed on the buyer; there is sometimes joint and several liability on the other party if the tax is not paid. The tax incidence is factored into the price as a practical matter, and some residential condominium transactions require the buyer to pay all taxes.

Example 1: Miranda has a growing family and decides to move to Brooklyn, so she purchases a brownstone for $5 million. The total NYS and NYC transfer taxes are $141,250 (2.825%), of which $91,250 (1.825%) is paid by the seller and $50,000 (1.0%) is paid by Miranda.

New York State's new law made two changes that effectively apply only to properties in New York City. First, the NYS transfer tax is increased from 0.4% to 0.65% for any transfer of NYC residential real property with $3 million or more of consideration, or any transfer of other NYC real property with $2 million or more of consideration.

Second, a new NYS supplemental transfer tax is imposed on any transfer of NYC residential real property with consideration of $2 million or more, at increasingly higher rates. The NYS supplemental transfer tax is imposed on the buyer, like the NYS mansion tax. As a result, for NYC residential real properties, the tax rates for different levels of consideration under the new law are as indicated in Chart 2: