How Much Is the Typical Co-Op Flip Tax in NYC?
What is the typical co-op flip tax in NYC? If you are considering selling an apartment in NYC, you’ve probably heard that most co-ops have an additional closing cost for sellers called a flip tax. Surprisingly enough, even some condos in NYC have a flip tax! We explain everything you need to know about co-op and condo real estate flip taxes in NYC in this article.
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.
Seller Closing Costs Are High
Closing costs for sellers in NYC are sky high and can often exceed 8% of the sale price thanks to NYC’s typical 6% real estate commission. 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. At the same time, many of the rent-stabilized tenants who resided in these buildings were offered substantially discounted, ‘insider’ prices to purchase. To prevent flipping and address the major capital investment needs of the buildings, many co-ops implemented flip taxes on resales. Revenues from flip taxes help strengthen a building’s financial statement.
What is the average flip tax in New York City?
The average flip tax in NYC is a few percentage points (1–3%) 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:
Example Flip Taxes Include:
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 of any of the above flip tax formats — 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. However, asking the buyer to pay the flip tax has to make sense in the context of the demand you are seeing for your listing. If you are in a multiple offer situation, perhaps you could ask the buyer to pay the flip tax. If you are selling an expensive apartment which has been on the market for more than 4 months, it would be unreasonable to even raise the possibility of the buyer paying the flip tax. 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 1–3% 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 Vary by Building
Flip taxes for co-ops (or condos) in NYC can be structured as a flat fee, a flat fee per share, a percentage of sale profits or a percentage of the sale price. 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.
Here is an example of an amendment to a NYC co-op proprietary lease and coop By-laws which calls for the implementation of a flip tax (percentage of sale proceeds):
“Notwithstanding anything to the contrary herein, effective on the Effective Date, simultaneous with any transfer of the shares or assignment of this Lease, lessee shall pay, or shall cause to be paid, to Lessor, by bank check or certified check drawn on a New York Bank, or by wire transfer of immediately available funds, payable to Lessor, consideration for such transfer of the shares and assignment of this lease (the ‘Transfer Fee’) in the amount of one percent (1%) of the gross sales price or other consideration paid for an apartment sold pursuant to a contract of sale dated on or after ____ (the “Effective Date”). Such transfers will be conditioned upon payment of the Transfer Fee to the Corporation. The Transfer Fee shall be deposited into the Corporation’s reserve fund and used soley for capital expenditures of the Corporation.
However, the transfer fee shall not apply to a transfer of the shares and assignment of this lease: (a) by a holder of Unsold Shares, (b) to Lesee’s spouse, a permanent companion of Lessee of the same or opposite sex or domestic partner of Lessee in each case residing with Lessee in Lessee’s apartment, © to Lesee’s adult children, (d) to a person or persons taking ownership of shares as an heir or legatee of Lessee, (e) by Lessee to a trust in which Lessee or any of the individuals described in (b) or © above is the beneficiary, or in which (i) the beneficiaries are Lessee’s minor children, and (ii) the trustee is an adult, or (f) to the estate of a deceased Lessee or by Lessee’s estate to a member of the immediate family of the deceased Lessee.
Notwithstanding anything to the contrary contained or implied in this section, the parties to a sale transaction, which would be subject to the Transfer Fee, may determine, by contract, the party who will be responsible for payment of the Transfer Fee due with respect to such transaction.”
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 real estate attorney and tax professional for specific advice. If you are conducting a 1031 exchange, you may wish to read Hauseit’s overview of How to Do a 1031 Exchange in NYC.
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.
Here is an example of language which specifically excludes a number of family transfers from having to pay the flip tax:
However, the transfer fee shall not apply to a transfer of the shares and assignment of this lease: (a) by a holder of Unsold Shares, (b) to Lesee’s spouse, a permanent companion of Lessee of the same or opposite sex or domestic partner of Lessee in each case residing with Lessee in Lessee’s apartment, © to Lesee’s adult children, (d) to a person or persons taking ownership of shares as an heir or legatee of Lessee, (e) by Lessee to a trust in which Lessee or any of the individuals described in (b) or © above is the beneficiary, or in which (i) the beneficiaries are Lessee’s minor children, and (ii) the trustee is an adult, or (f) to the estate of a deceased Lessee or by Lessee’s estate to a member of the immediate family of the deceased Lessee.
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.
Co-op Seller Closing Costs in NYC Include:
6% — Broker Commissions
425% — 1.825% — NYS & NYC transfer taxes
1–2% — Flip Tax (varies by building)
$2k — $3k — Attorney Fees
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.
Buyer Closing Costs in NYC Include:
2.05–2.80% — NYC/NYS Mortgage Recording Tax
1% — Mansion Tax (purchases at or above $1m)
- 425% — 1.825% — NYC/NYS Transfer Tax (for new construction or sponsor sales)
You can save $20,000 or more and reduce your buyer closing costs by requesting a safe and discreet Hauseit Buyer Closing Credit through an one of our brand name partner brokers. Buyer broker closing credits in NYC are completely legal and non-taxable.
Pro Tip: Discretion is very important when requesting a buyer closing credit 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 buyer closing credit without taking the risk of being treated differently by the seller or listing agent.
Read the Full Article: https://www.hauseit.com/flip-tax-nyc/
Disclosure: Hauseit (https://www.hauseit.com) 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).
