Whenever you are selling or purchasing real estate in NYC, you need to be aware of the closing costs you will be required to pay at the closing of the transaction. State and local transfer taxes are usually one of the largest costs a seller or buyer will face at the closing.
Those who sell the property or co-op shares in New York City for over $25,000 will be subject to both state and local transfer taxes at the time of closing. This applies to all residential real property, whether it is a single-family home, a co-op, or a condominium. If you are a buyer in New York purchasing new construction, the developer will typically pass these taxes on to you.
While some exemptions from these transfer taxes exist, they are very limited. But there is a way that transfer taxes in NYC can be reduced. Talking to an experienced real estate attorney in NY may be able to help you understand transfer taxes.
Sellers in NYC can potentially reduce their transfer taxes through an agreement called a purchase CEMA.
A purchase CEMA, or a consolidation, extension, and modification agreement, is an agreement between the seller and buyer. The buyer agrees to assume the balance of the seller’s mortgage and borrows any new money to make up the difference. Afterward, the buyer can then consolidate both mortgages together. How does this save on a New York City transfer tax?
New York real estate transfer taxes are only imposed on the property’s equity upon transfer.
When there is an outstanding mortgage on the property that is being assumed by the new buyer, the transfer fees will only be calculated based on the amount of equity in the home. For a $1 million property with a $400,000 mortgage that is assumed by the buyer through a CEMA, transfer taxes will only be calculated based on the balance of $600,000, potentially saving the seller significant money at closing.
A purchase CEMA can also help a buyer in a couple of different ways.
If the buyer is purchasing new construction from a developer, the buyer is typically responsible for the property transfer tax. In this case, a developer can offer incentives for property buyers with a CEMA to offer reduced closing costs.
In a resale business scenario, the amount that a buyer is responsible for in mortgage recording taxes is only calculated based on new lending. Consequently, with a purchase CEMA, the buyer will only be responsible for mortgage recording taxes on the new mortgage money they take out for financing any equity in the property. In this case, everyone wins.
The law surrounding real estate transactions in New York City can be complex and expensive. It is always advisable to have an experienced New York real estate attorney to offer skilled guidance in any real estate transaction in NYC.
New York City real estate lawyer Natalia Sishodia and her team at Sishodia PLLC work diligently to ensure that your entire real estate transaction goes smoothly and offer ways that you may be able to offset your transaction costs. Whether you are a buyer or seller, they offer professional legal advice and guidance so you can have peace of mind and so that you get value for your money. Contact them at (833) 616-4646 or through their online contact form to schedule a consultation.