Transfer taxes are an important part of real estate planning that is often overlooked by practitioners, even though the combined New York City and New York State transfer taxes can exceed three percent of the gross value of the property. A real estate owner who buys and sells leveraged properties may often find that its transfer tax bill exceeds its income tax bill or even its net sales proceeds. In Matter of GKK 2 Herald, NYC Tax Appeals Tribunal, Administrative Law Judge Division (ALJ), TAT(H) 13-25(RP), decided April 1, 2015, illustrates a failed attempt to structure around transfer taxes that resulted in millions of dollars of transfer tax liability.

Transfer Tax Basics

The New York City transfer tax rate is 2.625 percent of the transferred consideration, which is, generally, the gross value of the property transferred. For example, if one sells a New York City property with a gross value of $100 million, subject to $70 million of mortgage debt, the transferred consideration is $100 million and the NYC transfer tax is $2.625 million, even though the net equity is only $30 million. Similar rules apply for the New York State transfer tax, which is imposed at the rate of 0.4 percent on the transferred consideration for all real properties in New York State, for a combined transfer tax rate of 3.025 percent. The transfer taxes are generally paid by the grantor/seller of the taxed property.

Relevant Code Provisions

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