Understanding New York Real Estate Taxes
Contributed by Jeremy McCarthy
25 September, 2018
Taxes differ from country to country, state to state, and even city to city. They are often also introduced and withdrawn without much warning as we explained in our 'Individual Taxation' feature. And this is something all property buyers need to keep in mind.
For this post, the focus will be on real estate taxes in New York, where Curbed reports property prices are declining. This means that now is a good time to buy a living space in the Big Apple. If you are thinking about buying property in the city, it pays to be aware of the different taxes, as they will alter the final amount that will be paid for.
First, there is the infamous mansion tax, which taxes any property in New York worth over $1 million. The tax has proved controversial, as it does not take into account how property prices have increased throughout the years. The mansion tax is simply a 1% tax on any home worth over $1 million, which must be paid by the buyer within 15 days of closing the transaction. A $1 million house, therefore, will bring in a $10,000 mansion tax. As mentioned, this tax is an oddity since the $1 million threshold is already outdated (it was introduced in 1989) given how most properties are already in that price range.
There is also the mortgage recording tax, which refers to a tax imposed on recording the mortgage (when it becomes public record). Residential properties worth $500,000 or less are taxed 2.05%, while homes worth above $500,000 are taxed 2.175%. The mortgage lender will pay 0.25% of this tax, with the rest to be paid by the borrower. But if the property is paid in full and in cash, the mortgage recording tax, which can be quite hefty, will be avoided.
Next there is a transfer tax that is imposed upon the transfer of the property's title from the owner to the buyer. The rate largely depends on the property type. A family home, co-op, or condo worth $500,000 or less, for example, has a tax rate of 1%, while the same type of living space worth over $500,000 has a tax rate of 1.425%. Other types of properties have a tax rate ranging from 1.425â2.625%.
Curiously, there is also what is known as the "flip tax" which can add a few thousands more to the cost of a property. Despite the name, it is not actually government-sanctioned; instead, it is imposed by the building's administration as an additional revenue stream. Because it is not government-sanctioned, Yoreevo explains that the flip tax often surprises buyers. This is because being a source of additional revenue, the flip tax is not necessarily disclosed on the broker portal; often, it is mentioned only when the deal sheet is sent over, or if the buyer's lawyer has done due diligence. This "tax" causes lots of confusion, and often, frustration, among buyers looking for a place in the Big Apple. It is, therefore, something to look into for the Real Estate Board of New York.
In ending, those looking to buy property in New York need to consider all these taxes (and pseudo-tax in the case of the flip tax) when preparing their finances. In doing so, there will be no more surprises, and the property-buying process will go as smoothly as possible.
Jeremy McCarthy is an entrepreneur and freelance writer specializing in all matters related to tax and real estate. His goal is to help future buyers understand the complexities of the property market and help them save money. In his free time has indulges in his passion for interior design.
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