New York State has made changes to the State real estate transfer taxes that will apply to conveyances occurring on or after July 1, 2019. The changes generally increase the effective tax rates for certain real estate transfers and introduce a progressive rate structure so that higher-value transactions pay transfer taxes at increasingly higher rates. The changes to the State transfer taxes do not impact other transfer taxes (e.g., New York City real property transfer taxes) that may also apply to a given transaction.

Real Estate Transfer Tax

There are currently two New York State real estate transfer taxes. The first is a transfer tax on each conveyance of real property where the consideration is more than $500. This first tax, which applies generally to all types of real property in New York, is charged at the rate of $2 for each $500 of consideration (i.e., about 0.4%) and is typically paid by the seller. This existing transfer tax is being continued under the new law, but, under the changes that take effect on July 1, 2019, a new additional transfer tax will apply to transfers of certain real estate within cities having a population of 1 million or more. Under the new law, for (i) residential property in these cities with a sales price of $3,000,000 or more and (ii) other property in these cities with a sales price of $2,000,000 or more, there will be an additional transfer tax of $1.25 for each $500 of consideration (i.e., about 0.25%). Residential real property is defined to include any premises that is or may be used in whole or in part as a personal residence, and includes a one-, two- or three-family house, a condominium unit, and a cooperative apartment unit. The new State transfer tax rates will be:

Property Type / Threshold Price

Continued State Transfer Tax Rate

Newly Added State Tax Rate

Total State Tax Rate

Real property where the consideration is more than $500

0.40%

N/A

0.40%

Residential transfers in cities of 1 million or more for $3,000,000 or more

0.40%

0.25%

0.65%

Other real property transfers in cities of 1 million or more for $2,000,000 or more

0.40%

0.25%

0.65%

The newly added transfer tax rates provided for above for qualifying residential and/or other properties apply from the first dollar. So, for example, in the case of a qualifying transfer of a residential property where the consideration is $3,500,000, the 0.65% tax rate would apply to the entire $3,500,000 purchase price, not just the incremental $500,000 over the $3,000,000 threshold.

Additional Real Estate Transfer Tax / Mansion Tax

There is a second, additional tax imposed by New York State on each conveyance in New York where the real property is used as a personal residence (i.e., a one-, two-, or three-family house, a condominium unit, or a cooperative apartment unit) and the consideration is $1 million or more. This additional tax, often referred to as the “mansion tax,” is charged at a rate equal to 1% of the consideration. The mansion tax, which applies throughout New York, is payable by the buyer, unless the buyer is exempt, in which case the mansion tax is payable by the seller. The existing mansion tax is being continued under the new law, but, under the changes that take effect on July 1, 2019, a new supplemental mansion tax will apply and be payable by the buyer (or, if the buyer is exempt or fails to pay the new supplemental mansion tax by the seller) for transfers of certain residential real property within cities having a population of 1 million or more. In other words, the new supplemental mansion tax does not apply throughout the State the way the current mansion tax does, but only within cities that have a population of 1 million or more. Under the revised tax rates that start on July 1, 2019, the new mansion tax rates will be:

Threshold Price

Continued Mansion Tax Rate

Supplemental Mansion Tax Rate

Total Mansion Tax Rate

Residential real property anywhere in New York where the consideration is $1,000,000 or more

1.00%

N/A

1.00%

Residential real property within cities of 1 million or more where the consideration is $2,000,000–$2,999,999

1.00%

0.25%

1.25%

Residential real property within cities of 1 million or more where the consideration is $3,000,000–$4,999,999

1.00%

0.50%

1.50%

Residential real property within cities of 1 million or more where the consideration is $5,000,000–$9,999,999

1.00%

1.25%

2.25%

Residential real property within cities of 1 million or more where the consideration is $10,000,000–$14,999,999

1.00%

2.25%

3.25%

Residential real property within cities of 1 million or more where the consideration is $15,000,000–$19,999,999

1.00%

2.50%

3.50%

Residential real property within cities of 1 million or more where the consideration is $20,000,000–$24,999,999

1.00%

2.75%

3.75%

Residential real property within cities of 1 million or more where the consideration is $25,000,000 or more

1.00%

2.90%

3.90%

As with the newly added transfer taxes, the new supplemental mansion tax rates provided for above apply from the first dollar. So, for example, in the case of a qualifying transfer of a residential property where the consideration is $3,500,000, the 1.5% tax rate would apply to the entire $3,500,000 purchase price, not just the incremental $500,000 over the $3,000,000 threshold.

Together, the existing State real estate transfer and mansion taxes generated revenues of about $1.1 billion for New York State in its fiscal year 2018. In announcing the changes, the Governor’s office indicated that the newly-added transfer taxes and supplemental mansion taxes are expected to generate additional revenues of $365 million. Per the new law, these additional revenues are slated to be pooled with revenues from a new congestion pricing program for New York City (which won’t take effect until January 1, 2021) and a State-wide “internet sales tax” program to create a dedicated funding source (a so-called “lockbox”) for capital projects of the Metropolitan Transit Authority (MTA), which includes New York City Transit, Long Island Rail Road, and Metro North.

With these tax increases slated to take effect on July 1, 2019, there will be incentives for transactions that are or will soon be pending in New York to close before the higher tax rates take effect. Note, though, that if a written purchase and sale agreement exists that was entered into on or before April 1, 2019, the transaction should still be taxed at the lower rates even if the closing occurs on or after July 1, 2019, when the higher tax rates would otherwise apply. In that scenario, in addition to having on hand the purchase and sale agreement itself, it would be prudent to have other independent evidence of the agreement having been entered into on or before April 1, 2019, such as evidence as to the date of payment of any deposit, to demonstrate to the taxing authority that the lower rate should apply. There will also very likely be changes to the tax return (currently, form TP-584) used to calculate and remit the taxes once these changes take effect.

Note that, in addition to these two New York State real estate transfer taxes, depending on the location of the property being sold, there may also be local real property transfer taxes (such as in New York City) that may apply to a given sale. These local transfer taxes were not impacted by the recent changes to the two New York State real estate transfer taxes.