- Michael Shapot, Esq.
Don't Flip Out About A Flip Tax
The average co-op flip tax in NYC is between 1% to 3% of an apartment's sale price, but the exact amount varies by building. Certain co-ops have much higher flip taxes and others none at all, and some condos even have them as well.
What Is the NYC Flip Tax?
The NYC flip tax is a fee paid at closing for selling your apartment. NYC flip taxes are also known as transfer fees and were first implemented in the 1970s and 1980s as a way to generate capital for co-op buildings so that they could invest in major capital improvements without increasing maintenance fees for their shareholders (something no shareholder enjoys).
Although you used to only see flip taxes when selling a co-op, they are becoming more common in condos as well as they can generate additional income for the building. A typical NYC flip tax can generate substantial incomes for buildings, as well as discourage buyers and investors from buying and selling apartments with the intention of making a quick profit.
Keep in mind that all sales in New York City are subject to both NYS and NYC government transfer taxes. While a flip tax is sometimes referred to as a "transfer tax" it is technically a "transfer fee" and a separate fee from the New York transfer taxes. As the flip tax is considered a fee and not a tax, it is not deductible as a property tax.
Who Pays NYC Flip Taxes?
Historically, the flip tax is paid by the seller. However, the buyer may have to pay this fee as per the building's regulations, or the buyer and seller may agree to split the fee as part of the negotiation. The sales contract will indicate who is responsible for this fee. Generally, the building is not interested in which party pays the fee as long as it is paid.
According to the New York Business Corporation Law, unless the flip tax was listed in the original offering plan for the building, a flip tax can only be implemented by making an amendment to the building’s proprietary lease or by-laws, which usually requires 2/3 shareholder approval.
Where Do I Find the Amount of the Flip Tax for a Building?
The flip tax is charged directly by the cooperative building (or condominium), which means that the fees vary from building to building. You can typically find out how much the flip tax is by looking at the building’s by-laws. However, sometimes, the flip tax will be listed on a purchase application. If you have any questions about the flip tax, you can always reach out to the managing agent or enlist the help of your real estate professional.
What Is the Average Flip Tax in NYC?
Flip taxes typically range from 1% to 3% of the contract sales price. However, HDFC co-ops, where flipping is highly discouraged, can have flip taxes as high as 20-30 percent (or even higher).
Flip taxes in NYC can be structured in any of the following ways:
Percentage of the gross sale price: for example, 2%
Set dollar amount per co-op share owned: for example, $50 per share 100 x $50 = $5,000
Flat fee flip tax: for example, $5,000
Percentage of sale profits: for example, 15% of gross profits
Sliding scale: for example
if you’ve been in the building less than one year
5% if you’ve lived in the building 1-4 years,
2.5%, if you’ve been in the building 4+ years
1% a combination of any of the above.
Flip Tax Bottom Line
While it might be frustrating to pay a 1% - 3% flip tax in NYC, this fee also has its benefits. By charging a flip tax, buildings can help with their finances, prevent costly and permanent monthly maintenance increases, fatten their reserves, and possibly prevent excessive speculation from investors.
NYC Flip Tax FAQs
Are Real Estate Flip Taxes in NYC Tax Deductible?
For tax purposes, flip taxes are not tax-deductible as they are considered to be transfer fees and not a tax. However, you can deduct the amount of a flip tax from your capital gains, as a cost of the purchase or sale which reduces your net proceeds, which will, in turn, reduce your overall tax liability.
Can I Avoid a NYC Flip Tax?
There isn't any easy way to avoid paying a flip tax in NYC, besides avoiding selling your property altogether. One notable exemption is if you are the sponsor, you will probably be exempt from paying a flip tax. Nevertheless, you may get some relief if you can convince a buyer to pay or split the flip tax with you.
Do You Pay a NYC Flip Tax When Transferring Ownership to Family?
The building’s proprietary lease or by-laws will explain whether a flip tax will be charged on transfers to family members. Usually, most co-ops will waive the flip tax if you are transferring your co-op apartment to a spouse, domestic partner, or children. However, every building is different.
What's the Difference Between a Flip Tax and a Working Capital Fund Contribution Fee?
Working capital contribution fees are non-refundable fees paid by buyers in new construction buildings. The purpose of the fee is similar to flip taxes in that the money is used for the building’s operating expenses or reserves. Most working capital fund contributions are equivalent to one to two months of maintenance costs in co-ops or one to two months of common charges in condos.