The New York State/City Real Property Transfer Tax’s Impacts on Estate Planning
- Published
- Dec 20, 2024
- By
- Andrew Cohen
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Understanding the New York State/City Real Property Transfer Tax (NYS RPTT) is important when planning your estate, especially if it involves real property. This article covers the complexities of the RPTT, its implications on various estate planning techniques, and how to minimize its impact.
What is the New York State/City Real Property Transfer Tax?
The New York State/City Real Property Transfer Tax is a tax imposed on the conveyance of real property located in New York State or New York City. For the RPPT to apply, there must be both a conveyance and consideration.
Conveyance refers to the transfer or transfers of any interest in real property by any method. This includes a transfer of a controlling interest in an entity.
- Corporation: A controlling interest, in the case of a corporation, means either 50% or more of the total combined voting power of all classes of stock of the corporation or 50% or more of the capital, profits, or beneficial interest in the voting stock of such corporation.
- Partnership: A controlling interest in a partnership, association, trust, or other entity means 50% or more of the capital, profits, or beneficial interest in the partnership, association, trust, or other entity.
There are two important exceptions to the term conveyance for purposes of the NYS RPTT:
- A mere change in identity or form of ownership of the property.
- A conveyance pursuant to a devise, bequest, or inheritance.
Consideration means the price actually paid or required to be paid for the real property or interest in the real property. Included in the term consideration, among other things, is the amount of any mortgage, purchase money mortgage, lien, or other encumbrances, whether the underlying indebtedness is assumed or taken subject to the mortgage. Additionally, in the case of a transfer or acquisition of a controlling interest in any entity that owns real property, consideration means the fair market value of the real property or interest therein, apportioned based on the percentage of the ownership interest transferred or acquired in the entity.
When does the New York State/City Real Property Transfer Tax Apply?
Common estate planning techniques such as selling real property to an Intentionally Defective Grantor Trust (IDGT) or transferring a controlling interest in an entity to a family member may trigger the NYS RPTT. However, transferring real property via a devise, bequest, or inheritance may not be subject to the NYS RPTT.
Understanding the NYS RPTT applications and rates is important when engaging in an estate plan to avoid negating the benefits of the estate planning techniques due to being required to pay the NYS RPTT.
What is the New York Real Property Transfer Tax Rate?
New York State RPTT
- New York State imposes an RPTT on conveyances of real property or interest for consideration exceeding $500.
- The New York State RPTT tax rate is $2.00 for each $500 or fractional part of consideration (.4%).
- There is also an additional tax of 1% of the sale price (mansion tax) applies to residences where consideration is $1,000,000 or more.
New York City RPTT on or after July 1, 2019
- New York City imposes an RPTT on conveyances of real property when consideration exceeds $25,000.
- The tax rates are $1.25 for each $500 (.25%), or a fractional part thereof, when the consideration for the entire conveyance of residential real property is $3,000,000 or more.
- An additional base tax of $1.25 for each $500 (.25%), or fractional part thereof, when the consideration for the entire conveyance of property OTHER than residential property is $2,000,000 or more, AND
- A supplemental tax on conveyance of residential real property, or interest therein, when consideration is $2,000,000 or more. The tax rate is an incremental rate between .25% and 2.9% based on the purchase price.
Who Pays the NYS RPTT?
The seller pays the RPTT unless the parties agree in the contract that the buyer pays the tax. However, if the seller does not pay the tax or is exempt from the tax, the buyer must pay the tax.
RPTT and Estate Planning Techniques
Sale of Real Property to an Intentionally Defective Grantor Trust
Under this estate planning technique, the grantor sells real property to an IDGT for a promissory note equal to the property's fair market value. The NYS RPTT would apply to this transaction as the two elements necessary for the NYS RPTT exist. The grantor transfers or conveys real property to the IDGT in return for a promissory note, which is the consideration. The fair market value of the property transferred would be used to calculate the tax.
Transfer of Real Property to a Trust
Unlike the sale of real property to the IDGT, transferring a deed to real property into a trust in accordance with a trust agreement is not subject to the New York State RPTT. Although the transfer of the deed into the trust is a conveyance, no consideration is given in return for that transfer. Absent consideration, the New York State RPTT does not apply.
Transfer of a Controlling Interest in Real Property
As part of an estate plan, an individual may place property into an entity, such as a limited liability company, and transfer or gift a minority interest in that entity to an heir or heirs. A minority interest is defined as less than a 50% interest. A transfer of a controlling interest in an entity that holds real property requires a transfer of 50% or more interest. Therefore, a transfer of a minority interest is not a transfer of a controlling interest in the property and is not subject to an NYS RPTT. However, what about multiple transfers of an interest in that entity over a period of years?
Differences in New York State v. New York City Transfer Tax
New York State and New York City both have different rules regarding the transfer of a controlling interest in an entity over a period of years. New York State’s special rules can be found in Publication 576, and New York City’s guidance is in the Rules of the City of New York Title 19 Section 23-03.
New York State Transfer Rules
Under the New York State rules, when an interest in an entity occurs over a three-year period, those transfers are added together to determine if a transfer or acquisition of a controlling interest has occurred. In addition, if the transfers were intentionally planned to exceed a three-year period to avoid the NYS RPTT, those transfers will be aggregated to determine if a controlling interest was transferred.
Finally, a transfer or acquisition of a controlling interest is deemed to have occurred when a person or group of persons acting in concert transfer or acquire a controlling interest in separate transactions occurring within a three-year period. Persons act in concert when they have a relationship in which one person influences or controls the actions of another. For example, a father and son/daughter could act in concert to transfer a controlling interest in an entity.
New York City Transfer Rules
New York City uses the same definition of a transfer of a controlling interest in an entity as New York State. However, New York City’s aggregation rules regarding transfers within a three-year period are more widely applicable. The aggregation will occur on any related transfers. Additionally, there is a rebuttable presumption that all transfers made within a three-year period are related. Finally, transfers made pursuant to a plan are all considered related transfers.
Minimize RPTT and Optimize Your Estate Plan
Not addressing the NYS RPTT as part of your estate planning can be costly and reduce the overall benefits of the techniques used in the plan.
The key elements to the applicability of the NYS RPTT are that there must be a conveyance of real property for consideration. Absent a conveyance or consideration, the NYS RPTT will not apply. Conveyances for purposes of the NYS RPTT include all conveyances of real property, including the transfer of a controlling interest in an entity that holds real property. However, the transfer of a deed to a trust or the conveyance of real property by devise, bequest, or inheritance is not subject to the NY RPTT.
EisnerAmper can provide guidance on navigating the complexities of the RPTT and help develop effective estate planning strategies. Contact us today to schedule a consultation.
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