What Is the Average Co-op Flip Tax in NYC and Who Pays It?
The typical co-op flip tax in NYC is 1% to 3% of the sale price, but the specific flip tax calculation varies by building. Many condos in NYC also have a flip tax, however it’s usually called a ‘Reserve Fund Contribution’ and paid by the purchaser.
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What Is the Flip Tax in NYC?
A flip tax is a transfer fee charged by a co-op (or condo) on the sale or transfer of an apartment. The amount of the flip tax varies by building in NYC, and the flip tax is usually paid by the seller.
The flip tax charged by a building is typically documented in its proprietary lease and by-laws. It’s important to note that any flip tax payable on your sale is an additional closing costs on top of the standard NYC and NYS transfer taxes paid by sellers.
Flip taxes in NYC come in many shapes and sizes, and the most common flip tax is a small percentage of the gross sale price. Although you cannot avoid paying a flip tax if your building charges one, there are ways for you to significantly reduce or fully eliminate the average 6% NYC real estate commission when selling.
Flip taxes came about as a solution for the 1970s housing crisis in NYC. During this time, there was a wave of co-op conversions throughout the city as buildings were privatized. The buildings being privatized were often run down and in dire need of major capital investment.
What Is the Average Flip Tax in New York City?
The average flip tax in NYC is 1% to 3% of the sale price. However, flip taxes in NYC come in many shapes and sizes.
Flip taxes in NYC can be structured in any of the following ways:
- Percentage of the Gross Sale Price: i.e. 1.5% of the purchase price
- Set Dollar Amount per Co-op Share Owned: i.e. $50 per share
- Flat-Fee Flip Tax: i.e. $2,500
- Percentage of Sale Profits: i.e. 15% of profits
- Hybrid Format: i.e. $2,000 plus $25 per share
Flip taxes in NYC are typically paid by sellers, however virtually everything in a NYC real estate deal is negotiable. The sale contract will specify who has agreed to pay the flip tax due to the co-op (or condo).
Who Pays the Flip Tax in NYC?
The flip tax in NYC is usually paid by sellers, however everything is negotiable. In rare instances, the co-op may specify that the flip tax is paid by buyers. Your real estate purchase contract will specify whether the buyer or seller has agreed to pay the flip tax.
Flip taxes charged to buyers are often phrased as ‘capital contribution fees.’ If you are buying a condo in NYC, there’s a chance that you will be asked to make an initial capital contribution to the building’s reserve fund. A typical capital contribution is usually a few months’ worth of common charges (or some fixed contribution amount). We discuss capital contribution fees in greater detail below.
How Much is the Typical NYC Co-op Flip Tax?
The typical NYC co-op flip tax is 1% to 3% of the gross sale price. However, each co-op’s flip tax policy is unique and there is simply no way to generalize.
To confirm your co-op’s flip tax amount, you can contact the managing agent or ask your buyer’s agent to find out on your behalf. The flip tax amount may also be listed on the co-op’s purchase application.
Flip taxes for co-ops in NYC can also be structured as a flat fee, a flat fee per share or a percentage of your profits from the sale.
If the co-op has a per-share flip tax, you simply take the number of shares assigned to your unit and multiply that by the per-share flip tax amount.
For example, if your apartment has 100 shares and the flip tax is $25/share, the flip tax is: 100 x $25 = $2,500.
If your co-op charges a flip tax on your profits, you should confirm how the co-op calculates your cost basis. Do they allow you to include improvements in your cost basis?
Here is an example of how a NYC co-op flip tax on sale profits is calculated:
Flip Tax: 10% on sale profits
Basis Calculation: Purchase price plus any documented capital expenditures
Purchase Price: $250,000
Improvements: $100,000
Sale Price: $900,000
Profit: $900,000 — ($250,000 + $100,000) = $550,000
Flip Tax: 10% x $550,000 = $55,000
Can a Co-op or Condo in NYC Change its Flip Tax?
Yes, a co-op or condo in NYC can change its flip tax by amending the proprietary-lease and by-laws by receiving approval from a majority of the shareholders.
Flip taxes cannot be unilaterally imposed by the board without a shareholder vote.
Are real estate flip taxes in NYC tax deductible?
You can usually reduce your taxable capital gains as a seller by subtracting the flip tax as an additional cost of the sale (alongside broker commissions, for example). With that said, we suggest you consult your attorney and tax professional for specific advice!
Are flip taxes payable on transfers to family members?
Most co-ops will waive the flip tax if you are simply transferring your co-op to a spouse, permanent companion, children, or immediate family. However, each building has its own language and exceptions for the flip tax. The only way to confirm whether family transfers are exempt from a co-op’s flip tax is to check in the proprietary lease and By-laws.
Is the transfer tax the same as the flip tax in NYC?
All sales in New York City are subject to both NYS and NYC government transfer taxes, which are between 1.425% and 1.825%. While a co-op (or condo) flip tax is often called a ‘transfer tax,’ it is not technically a tax but rather a fee because it is not being collected by a government entity.
The largest closing costs for sellers in NYC are as follows:
- 6%: Broker Commissions
- 1.425% to 1.825%: NYS & NYC transfer taxes
- 1 to 3%: Flip Tax (varies by building)
You can review the full list of seller closing costs in NYC by reading Hauseit’s comprehensive NYC closing cost guide. The easiest way to reduce your seller closing costs is to list FSBO or list with a full-service agent for just 1% commission.
What is a capital contribution fee in NYC real estate?
If you’ve looked at condos or have considered buying a new development, chances are that you’ve seen a capital contribution fee listed as one of your buyer closing costs. Many condos and new developments charge buyers a capital contribution fee. The capital contribution fee is typically a few months’ worth of the apartment’s common charges.
Often times a new development will charge buyers two separate capital contribution fees. The first capital contribution fee, usually a few months’ worth of your apartment’s common charges, is the traditional way the building builds up is capital reserve fund. The second capital contribution fee may be a per-unit charge to help fund and pay for the live-in super’s apartment.
The largest closing costs for buyers in NYC are as follows:
- 2.05 to 2.80%: NYC/NYS mortgage tax (if financing)
- 1% to 3.9%: Mansion Tax (applicable to purchases of $1 million or more)
- 1.425% to: 1.825%: NYC & NYS transfer tax (applicable to sponsor sales)
You can save $20,000 or more and reduce your buyer closing costs by requesting a discreet NYC broker commission rebate through an one of our brand name partner brokers. Buyer broker rebates in NYC are completely legal and non-taxable.
Discretion is very important when requesting a real estate rebate in NYC’s traditional brokerage environment. Our partner brokers never openly discount or tarnish their reputations in any way, which means you can discreetly and safely receive a commission rebate without jeopardizing your deal by offending the seller or listing agent.
Original Article: https://www.hauseit.com/flip-tax-nyc/
Disclosure: Hauseit and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction. The services marketed on Hauseit.com are provided by licensed real estate brokers and other third party professional service providers. Hauseit LLC is not a licensed real estate broker nor a member of any multiple listing service (MLS).
