GIFTS OF RESIDENTIAL REAL ESTATE & THE NEW YORK TRANSFER TAX

Real estate transfer tax is a tax that is imposed by New York State and New York City for the privilege of transferring real property in that locality. 

For the purposes of this post, we're focusing on residential properties.

New York State 

The NYS transfer tax is imposed is 0.4% for properties below $3,000,000 and .065% for properties $3,000,000 and higher. 

New York State also imposes an additional 1% transfer tax on the transfer of residential properties of $1,000,000 or more. This is commonly called the mansion tax. Mansion taxes are paid by the buyer.

New York City

New York City's Real Property Transfer tax is imposed on transfers of real property when the consideration exceeds $25,000. The New York City transfer tax goes from 1% to 1.425% when over $500,000. The transfer tax is based on the purchase price of the property.

A popular question that we receive about the transfer tax is does New York State and City apply the taxes to gifts. This often is the result of a client who is contemplating gifting, or may have even already gifted, a home to a child to a child or close relative and are worried about the potential transfer tax liability. 

Under New York Tax Law, the NYS transfer tax is imposed on each transfer when the consideration (usually the purchase price) is greater than $500. But by its very nature, a gift does not include the exchange of consideration (because no money exchanges hands) and thus no transfer tax is required to be paid. In any event, if a residential property gift includes the transfer of a mortgage debt on the property, the relief of indebtedness is treated as "consideration."

For example if I own a home with a $100,000 mortgage and I want to gift the home to my son, who also agrees to make payments on the mortgage and take over the debt. Since I no longer have a $100,000 debt to pay, it is as if my son gave me $100,000 in exchange for the home. This would incur a transfer tax liability. It is similar for the NYC transfer tax as well.

When making a gift of real property, it is important that you consult a real estate lawyer who may also consult with a tax accounting professional. There may be other collateral tax consequences to consider. You may have to file a gift tax return. You should also seek the help of a professional to evaluate the cost basis of the property because there may be capital gains taxes that need to be considered.