When selling a home or other type of real estate property in New York, it is essential to fully understand all applicable local and state taxes. New York’s transfer taxes are among the largest closing costs when selling a property, making it crucial to know how much you owe to the local and state governments and how the taxes affect your final profit.
The Tax Layers of a New York Property Sale
When selling property in New York, the transfer is subjected to multiple layers of taxes, which the title company typically calculates. They include federal capital gains taxes and local and state-level transfer taxes.
1. Federal Capital Gains Taxes
- Rate: Varies, typically from 0% to 28%.
Although this topic primarily covers New York taxes, it is crucial to understand how federal capital gains taxes can affect the sale of a property in New York.
According to the Internal Revenue Code (IRC), taxpayers may owe the federal government taxes (26 USC 1) for capital gains realized during the year. The IRS considers real estate property a type of capital asset. According to the IRS, if you sell real estate and the sale value is higher than the purchase value, the difference is a capital gain, which is taxable.
If you sell a property in New York, the amount you owe the federal government depends on two factors: your taxable income and how long you held the property.
- If you sell a property after holding it for a year or less, any capital gains realized are considered short-term. The IRS taxes short-term capital gains based on your income tax rate at the time of the sale.
- If you sell a property after holding it for over a year, any capital gains realized are considered long-term.
The tax rates for long-term gains depend on your income level and marital status. Most taxpayers realizing capital gains must pay one of three possible standard tax rates: 0%, 15%, or 20%. According to the IRS’s website, a small number of taxpayers may owe higher rates: up to 28%.
Your capital gains tax rate is 0% if you are:
- Filing as “single” or “married filing separately” and earning $41,675 or less.
- Filing as “married filing jointly” or “qualifying surviving spouse” and earning $83,350 or less.
- Filing as “head of household” and earning $55,800 or less.
Your capital gains tax rate is 15% if you are:
- Filing as “single” and earning over $41,675 but $459,750 or less.
- Filing as “married filing separately” and earning over $41,675 but $258,600 or less.
- Filing as “married filing jointly” or “qualifying surviving spouse” and earning over $83,350 but $517,200 or less.
- Filing as “head of household” and earning over $55,800 but $488,500 or less.
Your capital gains tax rate is 20% if:
- You earn above the maximum threshold for your filing status in the 15% tax rate bracket (e.g., filing as single and earning over $459,750).
Who pays the federal capital gains taxes in New York?
Per IRS Topic 409, any individual who realizes a gain upon selling a capital asset must pay the corresponding federal tax rates. In other words, the seller of the house must pay federal capital gains taxes.
2. New York State Transfer Taxes
According to the New York State Department of Taxation and Finance, the state levies a real estate transfer tax on “conveyances (transfers) of real property or interests therein.” The tax applies to all transfers where the consideration is worth over $500.
2a. The Base Transfer Tax Rate
- Rate: $2 per $500
The base transfer tax rate in the State of New York is $2 for every $500 or fraction thereof in the transfer consideration.
Example: When selling a property for $850,000 in Utica, NY, the state will only levy the basic tax on the transfer, as the conveyance amount is under the minimum for the mansion tax. The New York state transfer tax in this case is $3,400.
Who pays the state transfer taxes in New York?
The New York State Department of Taxation and Finance states that the base tax and additional base tax are the responsibility of the grantor, meaning the seller must pay them unless a binding contract between buyer and seller says otherwise. If the seller does not pay the tax, the responsibility to pay falls on the buyer.
The buyer must typically pay supplemental taxes unless they are tax-exempt or do not pay, in which case the seller must pay them.
In all cases, if one party receives the duty to pay a transfer tax because the other party failed to pay, the corresponding tax becomes a joint and several liability between both buyer and seller.
2b. Mansion Tax
- Rate: 1% of the property’s final sale price
If the total transfer consideration is $1 million or higher, the Empire State imposes an additional tax known as the mansion tax, equal to 1% of the final sale price.
Example: When selling a property for $2,100,000 in Rome, NY, the state will levy both the basic tax and the mansion tax on the transfer. The basic tax is $8,400, and the mansion tax is $21,000, meaning New York will take a total of $29,400 in transfer taxes.
Who pays the mansion tax in New York?
The mansion tax is typically the buyer’s responsibility unless the buyer is tax-exempt or does not pay these taxes. In either case, the seller must pay.
Example: Mr. Fusco purchases the $2,100,000 property for sale in Rome, NY. While the total transfer taxes for this property are $29,400, including $8,400 of basic tax and $21,000 of mansion tax, the buyer and the seller will pay different amounts. The mansion tax is the buyer’s responsibility, meaning Mr. Fusco will pay $21,000 in mansion tax.
3. New York City Taxes
In addition to state-level taxes, sales of homes in New York City are subjected to the Real Property Transfer Tax (RPTT).
3a. New York City Real Property Transfer Tax (RPTT)
According to the NYC.gov website, the RPTT applies to all real property sales in New York City and transfers if the consideration amount is more than $25,000.
NYC transfer tax rates depend on the type of property transferred and the total consideration amount at the time of the sale.
Residential Type 1 Transfers
A Residential Type 1 transfer occurs when one party transfers the economic interest in the following property types to another party: A one-family house, a two-family house, a three-family house, an individual residential condominium unit, or an individual cooperative apartment.
If the value of a Residential Type 1 property is $500,000 or less at the time of the sale, the RPTT tax rate is 1% of the final price. If the value exceeds $500,000, the tax rate is 1.425%.
Example
Mr. Finch sells an individual residential condo unit to Mr. Wiley for the final price of $1,925,000. This transfer qualifies as a Residential Type 1 transfer.
Due to the final price exceeding the $500,000 threshold, Mr. Finch must pay the 1.425% tax rate, meaning he owes $27,431.25 in transfer taxes to the city in addition to the $7,700 basic transfer tax. As Mr. Wiley is the buyer, he will owe the $19,250 mansion tax.
Residential Type 2 Transfers
A Residential Type 2 transfer occurs when one party grants, assigns, surrenders, or transfers the economic interest of these property types in a leasehold interest: A one-family house, a two-family house, a three-family house, or an individual dwelling unit in a home of more than three families independently living from each other.
If the value of a Residential Type 2 property is $500,000 or less at the time of the transfer, the RPTT tax rate is 1%. If the value is over $500,000, the tax rate is 1.425%.
Example
Mr. Finch grants a one-family house to Mr. Reese. At the time of the transfer, the house’s fair market value was $589,000. The grant qualifies as a Residential Type 2 transfer, and its value exceeds the $500,000 threshold.
Mr. Finch will pay the 1.425% tax rate, meaning he’ll pay $8,393.25 in transfer taxes to the city on top of the state’s basic transfer tax ($2,356).
All Other Transfers
On transfers of property that do not fall into the Residential Type 1 or Type 2 categories, New York City levies the RPTT based on the property’s value alone. The tax rates are 1.425% for property valued at $500,000 or less and 2.625% for property worth more than $500,000.
REITs
In the case of a transfer of real property in New York City to a Real Estate Investment Trust (REIT), all applicable tax rates are halved.
Example
If Mr. Finch sells a $1,925,000 individual residential condo unit to Mr. Wiley’s REIT instead of himself as an individual, he may benefit from the halved tax rate. The tax rate that would normally apply is 1.425%, meaning the halved rate is 0.7125%.
Consequently, Mr. Finch would only need to pay the city $13,715.63 in transfer taxes. The state’s $7,700 basic transfer tax paid by the seller and the $19,250 mansion tax paid by the buyer remain unchanged.
3b. Extra Transfer Taxes
The state may apply extra taxes if the property is located in New York City and meets specific property type and consideration amount criteria. These taxes apply on top of the base tax and the mansion tax.
- Additional base tax: For residential property transfers with a total consideration value of $3 million or more, the state levies an additional base tax of $1.25 for each $500 or fraction thereof in the consideration. For real property other than residential with a total consideration value of $2 million or more, New York taxes $1.25 for each $500 or fraction thereof in the consideration.
- Supplemental tax: The state of New York levies a supplemental tax for transfers of residential real property in NYC with a total consideration amount of $2 million or more. The rate varies from 0.25% to 2.9% of the total purchase price.
The supplemental tax rates for residential property transfers in New York City are available in detail on Form TP-584-NYC-I. The supplemental tax rates break down as follows:
- Conveyances under $2 million: The supplemental tax does not apply (0% of the purchase price).
- Conveyances at least $2 million but under $3 million: 0.25% of the purchase price
- Conveyances at least $3 million but under $5 million: 0.5% of the purchase price
- Conveyances at least $5 million but under $10 million: 1.25% of the purchase price
- Conveyances at least $10 million but under $15 million: 2.25% of the purchase price
- Conveyances at least $15 million but under $20 million: 2.5% of the purchase price
- Conveyances at least $20 million but under $25 million: 2.75% of the purchase price
- Conveyances over $25 million: 2.9% of the purchase price
Tax Exemptions from the New York Real Estate Transfer Tax
According to Section 1405(a) of the New York Tax Laws, the following entities benefit from an exemption from paying the state’s real estate transfer taxes:
- The state government of New York
- Any agency, instrumentality, county, public corporation, or any other political subdivision of the state of New York
- The federal government
- Any federal governmental body, agency, or instrumentality
- The United Nations
Additionally, subsection (b) outlines a list of exclusions to the tax. The transfer tax does not apply to the following transfers and conveyances:
- Any conveyances to one of the entities exempted from paying the state’s real estate transfer taxes: Federal government, state government, United Nations, or any of their agencies, subdivisions, public corporations, or instrumentalities.
- Conveyances that modify or supplement a prior conveyance, provided they don’t add extra consideration.
- Conveyances connected to a tax sale.
- Conveyances used to secure a debt or an obligation.
- Transfers of real estate without consideration or not connected to a sale, including gifts.
- Conveyances as part of a deed of partition.
- Conveyances completed under the Federal Bankruptcy Act (e.g., reorganization bankruptcy).
- Conveyances of real estate property that were done as part of a contract to sell the property without the property’s usage or occupancy.
- Conveyances of an option or contract to buy real property with use or occupancy under the following conditions: The consideration amount is under $2,000, and the grantor exclusively used the property as a personal residence. The property must be a 1-family house, 2-family house, 3-family house, or an individual condominium unit.
- Conveyances of real estate property in a Tax-Free area under Article 21 of the New York Economic Development Law (START-UP NY program).
Example
Mr. Whistler sells a property located in Rochester, NY, to the New York State Department of Transportation (NYSDOT). NYSDOT is an agency of the State of New York that is exempt from paying the state’s transfer taxes. Selling the property to NYSDOT counts as a conveyance to an exempt entity, meaning Mr. Whistler is exempt from paying the real estate transfer tax.
New York State Transfer Tax vs. Other U.S. States
Compared to other states, New York’s transfer taxes on real estate are within nationwide averages. The basic tax rate of $2 per $500 is comparable to many other states. However, the state’s possible additional high-value taxes, such as the mansion tax or New York City’s supplemental taxes, can further increase the total tax liability on real estate transfers.
Florida
According to the Florida Department of Revenue, the basic tax rate for real estate transfers in Florida is $0.70 per $100.
Example: When selling a home for $200,000 in St. Petersburg, FL, the state will levy $1,400 in transfer taxes. In comparison, selling a home for the same price in Utica, NY, requires paying the state of New York $800 in transfer taxes.
Pennsylvania
When selling real estate in Pennsylvania, the state levies a deed transfer tax equal to 1% of the property value. The local government also levies its own transfer tax, split between the municipality and the school district. While transfer tax rates vary from county to county, the most common rate is 1%: 0.50% from the municipality and 0.50% from the school district.
Example: When selling a home for $225,000 in Harrisburg, PA, located in Dauphin County, the total amount of real estate transfer taxes owed is 2% ($4,500): 1% ($2,250) levied by the state, 0.50% ($1,125) by the municipality, and 0.50% ($1,125) by the school district. In contrast, selling a home for the same price in Albany, NY, requires paying New York $900.
Illinois
Real estate transfer taxes in Illinois feature three primary layers: a state-level tax of $0.50 per $500, a county-level tax of $0.25 per $500, and a municipal transfer tax that varies from city to city. For example, the municipal transfer tax in Chicago is $5.25 per $500.
Example: When selling a home for $300,000 in Chicago, IL, the combined total transfer taxes are $3,600. In this instance, the state levies $300, the county takes $150, and the municipality collects $3,150. In contrast, when selling a home for the same price in Syracuse, NY, the state will take $1,200 in transfer taxes.
New York Transfer Tax Implications for Foreign Citizens
When selling a home as a foreigner, in addition to all applicable federal, state, and local taxes, you are required to pay an additional tax called FIRPTA (Foreign Investment in Real Property Tax Act) withholding. This tax primarily applies to foreigners who do not normally report paying taxes annually. In most cases, the amount to be withheld equals 15% of the total amount realized on the sale.
Example: Mr. Tariq, a foreign national, sells a home in Oyster Bay, NY, for $1,200,000. In addition to all other applicable taxes, Mr. Tariq must withhold 15% of the sale value to pay the FIRPTA taxes. In this case, the amount corresponds to $180,000.
New York Transfer Taxes When Using an LLC
According to the New York State Department of Taxation and Finance when a limited liability corporation (LLC) is the buyer or seller in a deed transfer of a home, they must submit documentation containing the names and addresses of all members, managers, and authorized persons alongside Form TP-584 or Form TP-584-NYC, depending on whether the sale took place in New York City.
If the LLC’s members include business entities, such as other LLCs, the documentation must include the names and addresses of all shareholders, directors, officers, members, partners, or managers. This rule does not apply to LLC members that are publicly traded companies, REITs, UPREITs, or mutual funds.
Besides the need to submit extra documentation, LLCs are subjected to the same transfer taxes as natural individuals when selling a home.
How to Report Your Home Sale in New York for Taxes
When selling your home and reporting it for tax purposes, you must use IRS schedule D Form 1040, IRS Form 8949, and an IRS Form 1099-B. In most cases, your broker or sales agent will report these forms to the IRS for you. Forms 1099-B and 8949 will detail the property type, date, amount, proceeds, and whether the investment was long or short-term.
Form 1099-B is for the broker to report to the IRS, whereas Form 8949 allows you to reconcile amounts reported on Form 1099-B with the IRS. Lastly, you’ll need to use a Schedule D Form 1040 to report capital gains and losses from alternative sources, such as the sale of a home.
- Your broker should have submitted a Form 1099-B detailing the transaction.
- You complete a Form 8949 with your knowledge of the transaction. If everything is correct, then your Form 8949 should have the same information as the broker’s Form 1099-b.
- Once both Forms 1099-B and 8949 are done, fill out a Schedule D Form 1040 to report the capital gains and losses.
What About Selling a New York Home You Inherited?
Taxpayers who have inherited a home in the State of New York are generally exempt from paying transfer taxes upon receiving the deed. The exemption also applies to property located in New York City.
However, if the taxpayer later intends to sell the house, all applicable transfer taxes and rates apply as they normally would. The home’s status as an inherited property does not factor into the state’s transfer taxes.
FAQs
Here are the answers to some common questions about New York state property transfer taxes when selling a residence.
No, transfer taxes are not deductible in New York.
Yes. You should expect to pay New York transfer taxes on all real estate transfers in the state, including second homes.
No, you are not required to pay transfer taxes when you refinance your home.
The best way to avoid paying transfer taxes is by using a 1031 “Like-Kind” exchange.
Yes, you must pay transfer taxes in New York even if you lose money on a home sale.
No time period exists for home ownership to avoid transfer taxes in New York.
Typically the seller, but it depends on the situation. Either party could end up paying the tax based on exemptions.
Yes. You can avoid New York transfer taxes if you use a 1031 exchange to reinvest in a like-kind property as defined by the IRS.
