Whenever you are selling or purchasing real estate in NYC, you need to be aware of the closing costs you will be required to pay at the closing of the transaction. State and local transfer taxes are usually one of the largest costs a seller or buyer will face at the closing.
The transfer tax applies to all residential real property, whether it is a single-family home, a co-op, or a condominium. If you are a buyer in New York purchasing new construction, the developer will typically pass these taxes on to you.
While some exemptions from these transfer taxes exist, they are very limited. But there is a way that transfer taxes in NYC can be reduced. Talking to an experienced real estate attorney in NY may be able to help you understand transfer taxes. At Sishodia PLLC, our team of New York real estate attorneys are well-versed in the complex world of New York City real estate transactions. Whether you’re a buyer or a seller, we can help you navigate the intricacies of state and local transfer taxes. Call us today at (833) 616-4646 to schedule a consultation.
Who Pays Transfer Tax in NY
The primary taxes and additional taxes involved in the sale of property generally fall under the accountability of the seller. These taxes should not be directly or indirectly covered by the buyer unless expressly stated in an agreement between the two parties. However, if the seller neglects to pay the tax or is not required to, the responsibility shifts to the buyer.
When a residential property changes hands and the transfer tax is covered by the buyer as outlined in an agreement with the seller, this tax amount should be excluded from the taxable calculation.
If the buyer covers the transfer tax due to the seller’s neglect, both the seller and buyer become equally responsible for the tax. In this case, the buyer maintains the right to take legal action against the seller to recoup the tax payment.
The mansion tax (additional tax) and supplemental tax are usually the buyer’s responsibility. But, if the buyer fails to pay or is not required to, the responsibility shifts to the seller.
In situations where the seller ends up covering the tax due to the buyer’s neglect, both the buyer and the seller become equally responsible for the tax.
Purchase CEMAS Can Help Reduce Transfer Tax Rates in NYC
Sellers in NYC can potentially reduce their transfer taxes through an agreement called a purchase CEMA.
A purchase CEMA, or a consolidation, extension, and modification agreement, is an agreement between the seller and buyer. The buyer agrees to assume the balance of the seller’s mortgage and borrows any new money to make up the difference. Afterward, the buyer can then consolidate both mortgages together. How does this save on a New York City transfer tax?
How a CEMA Helps a NY Seller
New York real estate transfer taxes are only imposed on the property’s equity upon transfer.
When there is an outstanding mortgage on the property that is being assumed by the new buyer, the transfer fees will only be calculated based on the amount of equity in the home. For a $1 million property with a $400,000 mortgage that is assumed by the buyer through a CEMA, transfer taxes will only be calculated based on the balance of $600,000, potentially saving the seller significant money at closing.
What is a Mansion Tax in NYC?
New York City also imposes an additional transfer tax called the NYC Mansion Tax. The mansion tax is another term for a real estate transfer tax imposed on properties that are sold above a certain amount. This type of transfer tax usually only affects extremely expensive properties. Currently, the mansion tax rate in New York is 2.5%. This means that a home that is sold for $1 Million will have a mansion tax of $25,000 which is paid by the buyer.
Although this might seem like an excessive amount of money, it is important to remember that only a very small number of NYC homes are subject to mansion taxes. In fact, the mansion tax is only applicable to 1% of homes in NYC.
Most people don’t consider the NYC Mansion Tax a concern when selling or buying a house. However, it is something that is important to keep in mind if you’re thinking of buying an NYC property.
It is also important to speak with an experienced real estate attorney whether you are selling or buying a new home. A skilled lawyer may be able to help you identify potential pitfalls in the transaction and ensure that all the costs you are required to pay are calculated correctly. Sishodia PLLC may be able to assist you. Contact us today to schedule a consultation.
How a CEMA Helps a Buyer
A purchase CEMA can also help a buyer in a couple of different ways.
If the buyer is purchasing new construction from a developer, the buyer is typically responsible for the property transfer tax. In this case, a developer can offer incentives for property buyers with a CEMA to offer reduced closing costs.
In a resale business scenario, the amount that a buyer is responsible for in mortgage recording taxes is only calculated based on new lending. Consequently, with a purchase CEMA, the buyer will only be responsible for mortgage recording taxes on the new mortgage money they take out for financing any equity in the property. In this case, everyone wins.
Follow the Legal Advice of an Experienced New York City Real Estate Attorney
The law surrounding real estate transactions in New York City can be complex and expensive. It is always advisable to have an experienced New York real estate attorney to offer skilled guidance in any real estate transaction in NYC.
New York City real estate lawyer Natalia Sishodia and our team at Sishodia PLLC work diligently to ensure that your entire real estate transaction goes smoothly and offer ways that you may be able to offset your transaction costs. Whether you are a buyer or seller, we offer professional legal advice and guidance so you can have peace of mind and so that you get value for your money. Contact us at (833) 616-4646 or through our online contact form to schedule a consultation.
|Purchase CEMA Definition
|A Purchase CEMA (Consolidation, Extension, and Modification Agreement) is an agreement between the seller and buyer, where the buyer assumes the seller’s existing mortgage balance and borrows additional funds if needed.
|Calculation of Transfer Taxes
|NYC transfer taxes are imposed only on the property’s equity during the transfer.
|Equity Calculation Example
|If a property worth $1 million has a $400,000 mortgage assumed by the buyer through a CEMA, transfer taxes are calculated based on the remaining equity, which is $600,000.
|Potential Tax Savings
|A purchase CEMA can potentially save the seller a significant amount of money at closing by reducing the taxable amount for transfer taxes.