However, transfer taxes also warrant attention in the closing process of a real property sales transaction, as they can be substantial. A transfer tax is simply tax paid by the seller on the passing of title to property from one person or entity to another. A mansion tax is an additional transfer tax paid by the buyer on high value homes, hence the word “mansion”. New York imposes real estate transfer taxes on all real property transactions in excess of $500. This tax is measured on multiple factors such as selling price, mortgages, encumbrances and any debt on the property itself.
As part of the New York State Budget, New York increased transfer taxes on real property located in New York City after July 1, 2019. This new budget introduced a new rate structure with higher value transactions resulting in higher tax rates. Prior to adoption, a transfer tax of 0.4% applied to all real property transactions. In addition to the 0.4% tax, the new budget introduced an additional 0.25% transfer tax on residential property of $3 million or more and commercial property of $2 million or more.
There were also changes to the mansion tax, which increased under the new budget. Prior to adoption, the mansion tax was 1% of total consideration. In addition to the 1% mansion tax, the new budget added an additional layer of tax ranging from 0.25% on transfers of property for $2 million, up to as much as 2.9% on transfers of $25 million or more. Though the mansion tax is payable by buyers, sellers are often forced to offer more concessions and price reductions to help cover the cost of the tax.
In addition to the tax rate changes, effective September 13, 2019, when a limited liability company (LLC) is the seller (grantor) or buyer (grantee) in a deed transfer of a one to four unit residential building, the names and addresses of all members, managers, and other authorized persons of the LLC must be disclosed and attached to the Transfer Tax forms.