Last updated on August 16, 2023

What is a Flip Tax?

In New York City, there has been a considerable shift from rental units to co-ops over the past 80 years. Today, approximately 75 percent of housing in NYC is co-op housing. 

Cooperative housing, or co-ops, are corporations that own a building where the residents are shareholders of that corporation. Sales of units are not real property sales but transfers of shares of ownership in the building. The NYC co-op flip tax is a tax or transfer fee charged by a co-op association whenever a unit is transferred. This fee can be paid by a seller or a buyer, depending on the terms of the contract.

Speaking to an experienced New York real estate lawyer can help an individual understand their rights and responsibilities in the transaction. It’s crucial to ask the right questions before buying a co-op in New York to make an informed decision. At Sishodia PLLC, our lawyers are well-versed in real estate law, including flip taxes. If you are considering a co-op purchase or have any concerns related to real estate in New York, don’t hesitate to reach us out. Call us at  (833) 616-4646 to schedule a consultation and ensure your property journey is smooth and legally sound.

What is the Purpose of a Flip Tax?

When many buildings were converted from rental units to cooperative housing in the 80s, flip taxes became a good way to raise capital for expenses for the building without raising assessments for all the unit owners. 

As a corporate structure, a co-op is also more invested in long-term unit ownership and is more particular about who becomes a unit owner. Consequently, flip taxes also discourage buying and flipping units for quick profits.

How Much are Flip Taxes in NYC?

Flip taxes are determined by each individual building and will vary significantly from building to building. While it is most common for flip taxes to run between one and three percent of the unit’s sale price, buildings can calculate them based on

  • A percentage of the gross sales price of the unit
  • A set number determined by the number of shares in the building
  • A flat fee per transaction
  • A percentage of the net profit from the sale

How Much is the Average Flip Tax in New York?

The average NYC co-op flat flip tax is 1% to 3.3% of the sale price. This fee is usually paid by a seller. The cost of flip tax varies from one building to the next. In rare cases, you might even find a condo with a New York City transfer tax.

NYC’s flip tax structure can include a percentage, flat fee, per-share amount, or a combination of these. In addition to the flip tax, all other closing costs for sellers include broker commissions and the NYC & NYS Transfer Taxes. 

Who Pays the NYC Co-op Flip Tax?

While flip taxes are traditionally paid by the seller, who inevitably pays them is typically a matter of the terms of the sale. Often, the flip tax will be negotiated between the seller and buyer as part of the terms of the contract, sometimes with the buyer and seller splitting the fee between them at closing. 

As with many negotiable real estate costs, who pays for the flip tax can vary with the market at any given time. When the market is a buyers’ market, and sales are slower, the seller will most often pay the flip tax. In a hot market, a flip tax may fall on the buyer as part of the terms of the sale. Anyone buying or selling a co-op in New York City should understand who is contractually obligated to pay the flip tax in the transaction.

Are Flip Taxes Good or Bad for Co-Op Owners?

Flip taxes help subsidize maintenance collected by all the unit owners in the building. From a capital perspective, this helps everyone in the building and helps ensure that investors don’t come in and flip units. The longer a resident stays in a building, the more benefit they get from others’ flip taxes. 

But a flip tax can significantly eat into a seller’s equity upon the sale of the unit. Furthermore, a flip tax is not really a “tax” but a fee to the co-op association, and it is not deductible like other taxes. 

Why Co-Ops Are Bad

When you purchase an apartment in a cooperative building, you won’t directly own your specific unit. Instead, your ownership will be in the form of shares in a co-op corporation that holds the building. These shares come with a proprietary lease, granting you the right to live in the unit. The number of shares you own within the corporation corresponds to the size of your apartment.

However, it is important to consider some potential drawbacks or challenges associated with co-op ownership:

  • Stringent Approval Process: Co-op buyers often face a more thorough and demanding approval process, which may include interviews with the co-op board. This level of scrutiny can be time-consuming and may lead to rejection based on various factors.
  • Foreign Buyer Limitations: Foreign buyers seeking to purchase co-ops may encounter additional hurdles due to their lack of sufficient U.S. credit history and the requirements for relationships with U.S. banks.
  • High Down Payment Requirements: Co-op boards typically demand higher down payments, usually at least 20% of the purchase price. Some exclusive co-ops may even require higher amounts or prohibit buyers from obtaining loans.
  • Restrictive Rules and Regulations: Co-op properties often come with their own set of rules, which can limit or prohibit certain activities, such as subletting or using the unit as a secondary residence.
  • Complex Resale Process: Selling a co-op apartment can be more complicated due to the additional approval process involved. If a potential buyer is rejected by the co-op board, the seller may need to return to the market, potentially prolonging the sale.

While the question of whether co-ops are bad is frequently raised, it is crucial to consider the benefits of investing in a co-op. Here are some of the advantages of purchasing a co-op:

  • Affordability: One of the most significant benefits of co-ops is their lower cost compared to condos. In places like New York, co-ops make up about 75 percent of the housing inventory, contributing to their overall affordability.
  • Selective Screening Process: Co-op boards exercise a more rigorous approval process for potential buyers. While this may seem like a con, it also serves as an advantage by making the co-op community more selective. As a result, co-ops often boast higher owner-occupancy rates, which can provide a greater sense of stability and community in these living spaces.

Moreover, most co-ops have a flip tax, which is a fee paid at closing and can range from 1 to 3% of the sale price. This tax helps support the building’s finances. It’s important to note that the presence of a flip tax doesn’t inherently make co-ops bad. Instead, it is just one of the many factors that potential buyers need to consider when evaluating whether a co-op is the right choice for their circumstances.

Instead of focusing solely on potential disadvantages of co-ops, it is essential to carefully evaluate if co-ops are the best option for your circumstances. At Sishodia PLLC, our New York real estate lawyers can provide invaluable assistance in navigating the complexities of co-op transactions. We can guide you through the intricacies of co-op agreements and explain the legal implications involved. Schedule a consultation with us to explore your options.

Topic Details
Purpose of a Flip Tax Raise capital for co-op buildings without increasing assessments. Discourage quick buying and flipping of units for profit.
How Much are Flip Taxes in NYC? Varies by building. Can be a percentage of sale price, set number based on shares, flat fee, or percentage of net profit.
Average Flip Tax in New York NYC co-op flat flip tax: 1% to 3.3% of sale price. Amount varies by building. Some condos may have NYC transfer tax.
Who Pays the NYC Co-op Flip Tax? Typically paid by seller but negotiable. Market conditions may influence the responsible party (buyer or seller).
Are Flip Taxes Good or Bad for Co-Op Owners? Benefit co-op owners by subsidizing maintenance, discouraging speculation. Can reduce seller’s equity. Not deductible like taxes.

Consulting With an Experienced NYC Real Estate Attorney To Learn More About Flip Tax

Buying and selling real estate in New York City can seem overwhelming. There are a lot With the help of an experienced New York City real estate lawyer, you can have peace of mind knowing that your interests are being represented at all times. 
At Sishodia PLLC, NYC real estate lawyer Natalia Sishodia and her knowledgeable team have handled complicated real estate transactions throughout NYC. Contact us at (833) 616-4646 or through our website contact form to schedule a consultation.

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