New Yorkers are well-known for their intense love affair with the city. For many, that love endures even when faced with the high costs of real estate.
While the purchase price is often the first thing homebuyers in NYC look at, it’s worth noting that closing costs are some of the biggest line items in any real estate transaction in New York.
In this article, we’ll look at three major closing costs that buyers and sellers in New York should be aware of: transfer taxes, mansion taxes, and flip taxes.
With a little understanding of how these taxes work, buyers and sellers in NYC can be better prepared to tackle them when it comes time to close on their dream homes.
What Are Transfer Taxes in New York and Who Is Responsible for Them?
Transfer taxes are levied by both New York State (NYS) and New York City. The latter applies only to the sale of property within the five boroughs, known as a Real Property Transfer Tax (RPTT). This means that a house in Westchester County would not be subject to an NYC transfer tax.
When a home is sold in New York, the seller is generally responsible for paying transfer taxes. The taxes are calculated as a percentage of the home’s final sale price and apply to any real property worth more than $25,000.
How Much Are NYC and NYS Transfer Taxes?
The NYC transfer tax is currently 1% of the sale price for properties worth $499,999 or less. For properties valued above $500,000, the tax rate increases to 1.425% of the sale price.
In addition to paying a transfer tax to the city, sellers are also responsible for a transfer tax imposed by New York State. Properties valued at $3 million or less are subject to a 0.4% transfer tax, while those valued above $3 million are subject to a 0.65% transfer tax.
Put another way:
- Sellers pay a total transfer tax of 1.4% for homes priced below $499,999 (1% for NYC + 0.4% for NYS).
- Sellers pay a total transfer tax of 1.825% for homes priced between $500,000 and $3 million (1.425% for NYC + 0.4% for NYS).
- Sellers are subject to a total transfer tax of 2.075% for properties valued at $3 million or more (1.425% for NYC + 0.65% for NYS).
NYC Transfer Tax Examples
Selling for $450,000
Suppose a Murray Hill studio sells for $450,000. The NYC transfer tax would be $4,500 (1% of $450,000) and the NYS transfer tax would be $1,800 (0.4% of $450,000). The total transfer taxes on this particular sale would be $6,300, or 1.4% of the sale price.
Selling for $1.5 million
Let’s say a one-bedroom co-op in Tribeca is selling for $1.5 million. In this case, the NYC transfer tax would be $21,375 (1.425% of $1.5 million). Because the home is worth less than $3 million, the NYS transfer tax would remain at 0.4%, or $6,000. The total transfer taxes on this sale would be $27,375, or 1.825% of the sale price.
Selling for $3.5 Million
Last but not least, the seller of a $3.5 million condo in the Upper East Side would be responsible for paying $49,875 in NYC transfer taxes ($3.5 million x 0.01425%) and $22,750 in NYS transfer taxes ($3.5 million x 0.0065%), for a total of $72,625, or 2.075% of the sale price.
What Is the Mansion Tax in NYS and Who Pays It?
The mansion tax in New York State is a bit of a misnomer. It doesn’t mean that only mansions in the traditional sense are subject to it (i.e., enormous homes on acreage with many bedrooms and bathrooms).
In New York City, the mansion tax is a property transfer fee that applies to all real property worth $1 million or more, whether it’s a single-family home, co-op, condo, or townhouse located anywhere in the state.
The New York mansion tax is calculated as a percentage of the sale price, with rates ranging from 1% to 3.9% depending on the property’s value. Buyers are ultimately responsible for paying the mansion tax, though it’s sometimes negotiated as part of the sale as a commission rebate (more on this later).
What Are the Mansion Tax Rates in New York?
The mansion tax in NYS does not affect properties that were previously assessed at less than $1 million. For example, if a condo in Brooklyn was assessed at $950,000 but the sale price ends up being $1.1 million, the mansion tax would not apply.
In 2019, mansion tax rates in NYC were increased for properties assessed above $2 million. As of 2022, the rates are as follows:
- $1 – 2 million = 1.00%
- $2 – 3 million = 1.25%
- $3 – 5 million = 1.50%
- $5 – 10 million = 2.25%
- $10 – 15 million = 3.25%
- $15 – 20 million = 3.50%
- $20 – 25 million = 3.75%
- $25+ million = 3.90%
As an example, if a buyer closes on a property worth $1 million, the mansion tax due at closing is $10,000 ($1 million x 0.01%). For a home valued at $7.5 million, the mansion tax would be $168,750 ($7.5 million x 0.0225%). And a property sold for $22,000,000 is subject to a New York mansion tax $825,000 ($22 million x 0.0375%).
What Are Flip Taxes in NYC and Who Pays Them?
A flip tax in NYC is essentially a transfer fee that ranges anywhere from 1% to 3% of the sale price. When the property is sold, either the buyer or seller is responsible for the tax, depending on the building or transaction type.
To be clear, the phrase “flip tax” is a loose term in that it refers to no actual government tax, but rather a fee assessed by the building’s managing members or board.
In New York City, co-ops are the most common type of residential buildings to impose flip taxes on buyers and sellers, though they’re not unheard of in condos and townhouses.
The purpose of a flip tax is to generate revenue for the building, which can be used for maintenance, repairs, or capital improvements. Another reason buildings like co-ops choose to assess a flip tax is to discourage “flipping,” or quickly reselling units for a profit, as this can impact the property’s financial stability in the long run.
How Much Is the Average Flip Tax in NYC?
A common flip tax rate for New York City co-ops is 2% of the sale price, which is typically split between the buyer and seller evenly. For example, on a $1 million sale, the buyer and seller would each pay a $10,000 flip tax ($1 million x 0.002 = $20,000, then divided in half).
Flip taxes were first introduced in New York City in the 1970s. Some owners who have lived in their units before the flip tax was enacted may be grandfathered in and exempt from paying it, though this varies from building to building.
Can Transfer Taxes, Mansion Taxes, and Flip Taxes Be Avoided?
Transfer taxes, mansion taxes, and flip taxes in New York are generally non-negotiable and virtually impossible to avoid, though there may be a workaround in the form of a commission rebate.
This is a special type of refund in which the buyer’s agent, seller’s agent, or both give up a portion of their commission to sweeten the deal.
For example, if a condo closes at $1,000,000 and there’s a 3% commission due to the buyer’s agent ($30,000), the agent may agree to reduce their fee to 2%. In this case, the agent is paid a broker’s commission of $20,000 and the buyer gets a rebate of $10,000. This offsets the 1% mansion tax that the buyer would’ve had to pay without the commission rebate.
The Bottom Line
Paying New York City’s transfer, mansion, and flip taxes is simply the cost of doing business when you buy a home in one of the finest cities in the world. By being aware of these fees ahead of time, buyers and sellers can budget accordingly and avoid any nasty surprises at closing.
Disclaimer: Tax calculations are based on current New York City tax laws and rates, which are subject to change at any time. This material was provided for educational purposes only and is not intended to be a source of, or substitute for, tax, legal, or accounting advice. Readers are strongly encouraged to consult their tax, legal, or accounting professionals for advice, direction, and answers to their specific questions.
Ivan Suazo is a copywriter and SEO blogger with over ten years of experience in the real estate industry. He's also the founder of a wellness blog, QWERTYdelight.com, and writes sleep stories for the Slumber App.