The conveyance of real property or an interest therein, whether commercial or residential, is subject to the New York State and City real estate transfer taxes (RPT). This complex area of tax law has been widely discussed in various articles and publications, but many professionals and taxpayers are unsure of the types of conveyances subject to tax. This article will provide an overview of the nuts and bolts of the New York State and City RPT.
New York State imposes RPT on each conveyance of real property, or interest therein, when the consideration exceeds $500. The base of the tax, which is measured by consideration received, includes the selling price, mortgages, and other encumbrances that remain a lien on the property, and generally the assumption of any debt or obligation. Conveyance, for RPT purposes, means the transfer or transfers of any interest in real property by sale or exchange. Transfer has a broad definition in the tax law, and it includes an assignment, surrender, mortgage foreclosure, transfer in lieu of foreclosure, option, trust indenture, and conveyance upon liquidation or by a receiver. For New York City, the rules are similar to New York State, except that the RPT is imposed when the consideration exceeds $25,000, rather than $500.
The New York State RPT is to be paid by the grantor, and the return must be filed no later than the 15th day after the delivery of the instrument affecting the conveyance. An extension can usually be obtained through the submission of a written request. In the event the grantor fails to pay the transfer tax, the grantee will be liable for the tax.
The New York City RPT is also paid by the grantor; if the grantor does not pay, the grantee must pay. The RPT must be paid and the return filed within 30 days after the transfer of the property, even if the conveyance is not subject to tax. A 30-day extension will be granted if the grantor submits a written request to New York City.
As noted, the RPT is measured by consideration. Consideration means the price actually paid or required to be paid for the real property or interest therein, whether or not expressed in the deed, and it includes payment for an option or contract to purchase real property and the amount of any debt assumed by the buyer. It also includes the amount of any mortgage, purchase money mortgage, lien, or other encumbrance on the property, whether or not the underlying indebtedness is assumed. The New York State RPT is computed at the rate of $2 for each $500 of consideration for the transfer. In addition, residential owners should be aware of an additional 1% tax imposed on conveyances of residential property when the consideration is $1 million or more. This is known as the “mansion tax.”
For New York City, the tax rate and amount of tax due depends on the type of property involved and the amount of consideration. For transfers of economic interests in residential property, if the value is $500,000 or less, the rate is 1% of the consideration; if the value is more than $500,000, the rate is 1.425%. For all other transfers, if the value is $500,000 or less, the rate is 1.425% of the consideration; if the value is more than $500,000, the rate is 2.625%.
The New York State or City RPT does not apply to conveyances—
- to any exempt governmental agencies;
- used to secure a debt or other obligation;
- without consideration and that do not relate to a sale, such as gifts or inheritance;
- given in connection with a tax sale;
- that consist of a deed of partition;
- given pursuant to the federal bankruptcy act;
- where there is no change in beneficial ownership;
- consisting of the execution of a contract to sell without the use or occupancy of the property; or
- pursuant to devise, bequest or inheritance.
Businesses that participated in the Startup New York program are also exempt.
As an example, assume that Company A conveyed an interest in real property to Company B for $1 million and Company B assumed a debt of Company A of $500,000. There was also a mortgage on the property in the amount of $500,000 that the buyer did not assume. The base of the RPT in this example is $2 million, the price paid in cash, the amount of the mortgage on the property, and the amount of debt assumed. Thus, the New York State RPT is $8,000 ($2 divided by $500 times $2 million), and the New York City RPT is $53,000 ($2 million times 2.65%).
The conveyance of real property or an interest therein is subject to the New York State and City real estate transfer taxes (RPT).
Consideration received for real property situated partly within and partly outside of New York State or City is apportioned based on the attributed property situated within New York State or City, or both, as the case may be. When filing the RPT return in this, the grantor and the grantee must attach a statement setting forth the total consideration for the conveyance and the method used to apportion the consideration.
The overview provided above relates to the transfer of real property and interest therein. It does not include the provisions for leasehold transfers, which are another complex area of the New York State and City RPT and which will be discussed in a future column.