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 real estate lawyer may be able to help an individual understand their rights and responsibilities in the transaction.
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.
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.