Understand Transfer Taxes – and Their Loopholes
Oct 14, 2021 brooklyn real estate,brooklyn realty,buyer broker,Buying in Brooklyn,city taxes,closing,Closing Costs,mansion tax,nyc taxes,seller broker,seller costs,transfer taxes
If you’re looking into buying a Brooklyn home, it’s important that you understand all the costs that come up at closing. There are seller’s costs & there are buyer’s costs – and one of the trickiest costs that come up are called transfer taxes.
What are transfer taxes?
A transfer tax is the tax charged by a state or local government to transfer a sale of property from one owner to another, based on the home’s value. Most of the time, they’re paid by the seller – but it’s important for you to know for sure before heading to the attorney’s office at closing.
In New York City, the transfer tax can be broken down into two main parts. The state tax is 0.4 percent of the final sales price, whereas the city tax varies from 1 percent for sales of $500k or less, to 1.425% for all sales over $500k.
But wait, we’re not done yet –
There’s also the mansion tax. Due to the craziness that is New York City real estate, you can easily buy a 400sf STUDIO and be required to pay a “Mansion” Tax on it. The Mansion tax applies to all properties over $1 million dollars, and is an additional 1 percent tax on top of the 1.825% already required because the property is over $500k. And trust us, these cases are not that rare.
In general, the seller will pay all of the transfer taxes for properties under $1million. However, for sales of $1million and over, the seller will pay the 1.825% taxes in most cases, while the buyer is expected to pay the additional mansion tax.
There are the rules, then there are the exceptions…
Regardless of the sale price of the property, when it comes to sponsor sales and new construction developments, it is the buyer who pays ALL of the transfer taxes (in most cases). This is definitely worth factoring in when considering whether to buy new construction or pre-existing.
When the buyer pays the transfer taxes, it raises the entire taxable sale price. The New York government views this situation as the buyer paying some of the seller’s costs; the transfer tax is taken and added to the sale price, and then the transfer taxes are recalculated in relation to the new higher sale price.
Make sure to consult carefully with your tax attorney if you are looking at buying new development close to, but under $1million- you could inadvertently wind up paying the mansion tax in this case.
The best rule of thumb? Do your homework.
As always, do your research – if it’s new construction but has been sitting on the market for quite awhile, perhaps you can negotiate out of paying the transfer taxes, even if they are unwilling to lower the total sales price. These are the types of nuances that we – as a buyer’s broker – could help you navigate.
Still want to learn more info? Get in touch! We’re happy to help.