Clients have asked the firm over the years whether there is an obligation to pay New York State or New York City real estate or cooperative apartment transfer taxes or New York State "mansion tax" when a person takes, as a beneficiary under a will, a house, condominium unit or cooperative apartment and, if so, who would be obligated to pay such taxes. This question is important because if these three taxes are due on, say, an apartment which trades at $2.36 million according to one report, the current average sales price for a three bedroom coop in Manhattan
As discussed below, under these facts no obligation arises to pay any of the aforementioned taxes. 1. New York State a. Real Estate Transfer Tax Pursuant to § 1402(a) of the New York State Tax Law, a real estate transfer tax is "imposed on each conveyance of real property or interest therein when the consideration exceeds five hundred dollars[.]" This tax is to be paid by the grantor, unless the grantor has failed to make timely payment or is exempt, in which case the grantee is to pay the tax. N.Y. Tax Law § 1404(a). The definitions of the terms "conveyance" and "consideration" are crucial for present purposes. A "conveyance" is the "transfer. . . of any interest in real property by any method. . . . Notwithstanding the foregoing, conveyance of real property shall not include a conveyance pursuant to devise, bequest or inheritance[.]" N.Y. Tax Law § 1401(e) (emphasis added). Based upon this definition, the transfer of property by will or intestate succession would not be considered a "conveyance" in respect of which the real estate transfer tax would be imposed. Moreover, the tax law defines "consideration" as "the price actually paid or required to be paid for the real property or interest therein . . . whether or not expressed in the deed and whether paid or required to be paid by money, property, or any other thing of value." Id. § 1401(d) (emphasis added). In the case of a bequest, there is generally no price actually paid or required to be paid for the property or interest therein, so no tax is imposed. b. "Mansion Tax"
The so-called "mansion tax" is imposed on "each conveyance of residential real property or interest therein when the consideration for the entire conveyance is one million dollars or more." N.Y. Tax Law § 1402-a(a). c. Cooperative Apartment Transfer Tax Section 1405-B(a) of the Tax Law provides that, notwithstanding the definition of "conveyance" in § 1401(e), the taxes discussed above are imposed upon "the . . . conveyance of [shares of] stock in a cooperative housing corporation in connection with the grant or transfer of a proprietary leasehold by the owner thereof." However, as noted above, the real estate transfer tax and mansion tax apply when the "consideration" exceeds a certain amount. Id. §§ 1402(a), 1402-a(a). The consideration paid when shares of stock in a cooperative housing corporation are taken by a beneficiary under a will is generally zero, and therefore, for this and possibly other reasons, there would be no real estate transfer or mansion taxes payable. 2. New York City a. Real Estate Transfer Tax New York City imposes a real estate transfer tax "on each deed at the time of delivery by a grantor to a grantee when the consideration for the real property and any improvement thereon . . . exceed twenty-five thousand dollars." N.Y.C. Admin. Code § 11-2102(a). The definitions of "deed" and "consideration" show that the tax imposed by § 11-2102(a) is not applicable. First, a "deed" is defined as "[a]ny document or writing (other than a will) . . . whereby any real property or interest therein is created, vested, granted, bargained, sold, transferred, assigned or otherwise conveyed[.]" Id. § 11-2101(2) (emphasis added). Second, "consideration" is the "price actually paid or required to be paid for the real property or economic interest therein[.]" Id. § 11-2101(9) (emphasis added). Since (i) a deed does not include a will and (ii) there is generally no price paid or required to be paid when property is bequeathed or inherited, no tax is imposed by § 11-2102(a). b. Cooperative Apartment Transfer Tax
New York City imposes "a tax on each instrument or transaction (unless evidenced by a deed subject to tax under subdivision a), at the time of the transfer, whereby any economic interest in real property is transferred by a grantor to a grantee, where the consideration exceeds twenty-five thousand dollars." Id. § 11-2102(b).
O'Hare Parnagian LLP is located at 82 Wall Street, Suite 300, New York, NY 10005-3686. The firm specializes in corporate, commercial and insurance law and business and personal injury litigation. In addition, the firm selectively represents cooperative apartment corporations and condominium associations as general counsel and handles co-op, condo, townhouse and single and multi-family home purchases and sales for high net worth clients. Please call Chris Parnagian at (212) 425-1401 if you have any questions about this article or about the firm's real estate practice in general. ____________________
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then the total tax owing would be $66,670
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The mansion tax is to be paid by the grantee, unless the grantee is exempt from the tax, in which case it is paid by the grantor. Id. § 1402-a(b). The same definitions of the terms "conveyance" and "consideration" are applicable in the context of the mansion tax. Therefore, for the same reasons that there is no obligation to pay New York State real estate transfer tax upon the taking by a beneficiary under a will, there is no obligation to pay the mansion tax.
In the case of § 11-2102(b), we look at the definitions of "instrument," "transaction," and "consideration." An "instrument" is "[a]ny document or writing (other than a deed or a will) . . . whereby any economic interest in real property is transferred." Id. § 11-2101(3) (emphasis added). The statute defines a "transaction" as "[a]ny act or acts, regardless of where performed, and whether or not reduced to writing, unless evidenced by a deed or instrument, whereby any economic interest in real property is transferred (other than a transfer pursuant to the laws of intestate succession)." Id. § 11-2101(4). The definition of "consideration" as set forth above is applicable. So, while there is a "transaction," no tax is imposed by § 11-2102(b) on a beneficiary under a will because (i) there is no "instrument" and (ii) there is no "consideration" paid.
