The New York State Legislature passed the 2021-2022 New York State budget, which amended Section 1401 of the New York State Tax Law (the “Tax Law Amendment”) to eliminate the requirement to “gross-up” the consideration payable by the buyer of a residential unit pursuant to a contract that requires the buyer to pay the New York State Real Estate Transfer Tax (“RETT”) at the closing of title to the residential unit. Prior to the passage of the Tax Law Amendment, where the buyer paid the RETT, which is generally a seller’s obligation, the amount of the RETT which would have been paid by the seller, would have been treated as “additional” or “grossed-up” consideration for the sale of the residential unit. For Example:
Old Method of Calculating RETT
| State Tax that buyer would pay: | |
|---|---|
| Net Consideration (Purchase Price of Unit) | $1,500,000.00 |
| Tentative tax that seller would pay | $6,000.00 |
| Taxable Consideration (Purchase Price of Unit plus Tentative Tax) | $1,506,000.00 |
| State Tax that buyer pays | $6,024.00 |
New Method of Calculating RETT
| Tentative State Tax that seller or buyer would pay: | |
|---|---|
| Net Consideration (Purchase Price of Unit) | $1,500,000.00 |
| Tentative tax that seller would pay | $6,000.00 |
Pursuant to the Tax Law Amendment, a Purchaser who, after April 1, 2021, executes a Purchase Agreement that obligates the Purchaser to pay the RETT at the closing of title to the Unit, or a Purchaser who closes title to a Unit after July 1, 2021, will no longer pay the portion of the RETT based on grossed-up consideration. The RETT is 0.4% for residential conveyances with consideration of less than $3,000,000.00 and 0.65% for residential conveyances with consideration of $3,000,000.00 or more.
The Tax Law Amendment will take effect July 1, 2021 and will apply to (i) all buyers who close title to their residential units on or after such date, and (ii) all buyers who signed a contract on or before April 1, 2021, regardless of when they close title to their residential unit.