Buying or selling property in New York can feel like navigating a maze, especially when taxes are involved. One of the key concerns for many real estate clients is the real estate transfer tax. What is it, and who pays for it?
Whether you are a buyer or a seller, understanding this tax is crucial to avoid surprises at the closing table. Let’s break it down into simple terms so you can make informed decisions and keep your transaction as smooth as possible.
The basics of real estate transfer tax
In New York, if you are involved in selling or purchasing real property, you’re likely to encounter the real estate transfer tax. This tax kicks in when the sale price exceeds $500.
The state calculates it at $2 for every $500 of the property’s sale price. However, if the transaction involves residential properties worth $1 million, an additional “mansion tax” of 1% applies. For residential properties priced at $2 million or more, extra taxes are layered on top of the standard rates.
Who will pay for it?
Generally, the seller pays the base tax. However, the buyer may share the burden if the two parties agree to do so under a contract. If the seller can’t pay or is exempt, the buyer must pay it.
The mansion tax and supplemental taxes are typically the buyer’s responsibility. Similarly, if they cannot pay or are exempt, the seller has to shoulder the payment.
If the seller fails to fulfill their tax obligations, the buyer may have to cover the tax payment initially but can pursue reimbursement from the seller. This is where possessing a well-structured contract and consulting an attorney can prove to be significantly advantageous.
How can a lawyer help?
As you embark on your real estate journey, it is advisable to consult with a legal professional who can navigate the complexities of the state’s tax landscape on your behalf. Equipped with the appropriate knowledge and support, you can ensure peace of mind and maintain your focus on successfully closing the transaction.