Taxes are an inevitable part of life and real estate transactions are not exempt. Depending on the location of a home that you are buying or selling, the sale may be subject to a transfer tax. Find out about New York real estate transfer taxes here.
What Are Real Estate Transfer Taxes?
Taxes are an inevitable part of life. Real estate transactions are no exception. Whenever real estate is changing hands, the transfer may be subject to a transfer tax.
The tax is called by many different names — deed tax, stamp tax, mortgage registry tax — among others. But they're all essentially the same thing. The rules for transfer taxes, however, can change quite a bit depending on where the property is located.
Transfer taxes can be levied at the state, county, and municipal level. Furthermore, more than one type of transfer tax may be applicable. For example, your state and municipality may both charge a transfer fee.
The rate you'll pay also varies by location. The lucky residents of five states don't have to pay state transfer taxes at all (although the county or municipality may charge one).
New York, however, is not one of those states. Take a look at this overview of New York real estate transfer taxes. Keep in mind, however, that there is a lot of variety between locales even within the state. Speaking with a local real estate professional is the best way to find out what taxes your particular sale will be subject to.
Who Pays Transfer Taxes in New York: the Buyer or the Seller?
For residential real estate deals in New York, the seller usually pays the transfer tax. However, in some cases, the seller is exempt from having to pay this tax. The state of New York still wants their money, though, so in that case the buyer would have to pay.
Another notable exception occurs when a developer is buying a property. They will often agree during negotiations to pay the tax.
An important note for buyers is that this tax cannot be financed. You must have the cash available to pay the tax without it being a part of your loan.
How Much Are Transfer Taxes in New York?
Each state has its own rules for calculating transfer taxes. In the state of New York, the transfer tax rate goes up slightly on more expensive homes.
For the fiscal year 2020, there are two rates in effect. For homes that sell for less than $3 million, the state transfer tax rate is 0.4%. For homes that sell for more than that, the rate goes up to 0.65%.
Keep in mind that this is only the transfer taxes at the state level. The county or municipality where the property is located may also charge a tax.
For example, the city of New York charges their own transfer tax. On homes that sell for less than $500,000, this tax is calculated at 1%. This means that the combined tax from the state and the city will add up to 1.4%. For any home that sells for more than $500,000, the rate goes up to 1.425% - or a 1.825% total tax rate if state is included.
Can You Deduct Transfer Taxes?
If you've ever owned a home, you already know that you can deduct expenses like property taxes when tax time rolls around. Thus, you may wonder if you can deduct transfer taxes as well.
Unfortunately, transfer taxes are not eligible for deduction. However, there is one way you can still use them to your benefit.
When you sell your home, the profit may be subject to capital gains taxes. If you qualify, you can exclude up to $250,000 of profit from the capital gains tax requirement. For married couples filing jointly, this exclusion goes up to $500,000. Any profit over your allowed exclusion is subject to capital gains taxes.
The profit is determined by taking the sales price minus the cost basis of the home. This cost basis includes what you paid for the home, the cost of repairs or improvements that you made, and other various costs.
You can add what you pay in transfer taxes to your cost basis, thereby reducing the amount of profit you earned. Thus your capital gains tax will be calculated on a lesser amount.
In New York, you have 15 days from the date the deed is delivered to file Form TP-584 with the county clerk and pay the appropriate taxes. A local real estate agent can help guide you through this process to make sure that all required forms are filled out and the tax is paid correctly and on time.
Another thing to note is that New York has an extensive list of exemptions from the state transfer tax. It is well worth your while to speak with a local real estate agent about what transfer taxes your particular sale will be subject to and if you qualify for any exemptions. If you do, this will save you quite a bundle on your closing costs.
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