Exploring the Taxes Associated with Homeownership
Whether buying or selling a home, there are several taxes involved with the process that you should know about beforehand. While most of these taxes are settled at the time of the closing, some of the taxes represent an ongoing expense that must be included in your annual household budget. To that end, here is a look at some of the taxes you can expect to pay as part of the process of purchasing a home and as a homeowner in New York.
When selling a condo, a flip tax equal to 1 to 3 percent of the purchase price may be imposed upon either the buyer or the seller. This tax is also sometimes referred to as a transfer fee or a capital contribution toward the working capital fund of the building. Despite the name, this fee is not an actual tax imposed by a government authority, but rather by the condominium itself.
Properties that sell for $1,000,000 or more are charged a mansion tax. This tax is generally paid by the buyer
New York City Transfer Tax
The New York City Transfer Tax is imposed on condominiums at a rate of 1 percent on units with a purchase price of less than $500,000 and at a rate of 1.425 percent for those with a purchase price of more than $500,000. This tax is generally charged to the seller, with the city charging an additional $50 filing fee.
New York City Commercial Transfer Tax
If you own one unit that you are selling as two separate units, you may have to pay this tax if the units have not been properly combined. For units with a purchase price of up to $500,000, the tax rate is 1.425 percent. For those over $500,000, the tax rate is 2.625 percent.
New York State Transfer Tax
This tax is calculated by simply multiplying 0.4 percent times the purchase price. This tax is typically paid by the seller.
The New York State Non-Residency Tax
If you are selling property in New York but you are not a full-time resident of the state, you can expect to pay this tax at closing. This tax is calculated at approximately 7.8 percent of your net profit at the time of the closing and is paid by the seller.
If you are not a full-time resident of New York and you are considered by the state to be a foreigner as defined by the IRS, you will have to pay the FIRPTA tax. Generally speaking, foreign sellers are charged a 10 percent withholding of the purchase price at closing. This tax is submitted to the IRS, part of which may be returned if the IRS determines a lower price.
After you purchase your home, you will be responsible for the ongoing payment of your property taxes. If you took out a mortgage loan, your lending company will collect money from you beyond the monthly payment required to pay your loan. Part of this money will go toward the payment of your property taxes, while the rest will go toward payment of your homeowner’s insurance. If you paid cash for your property, you will be responsible for paying your property taxes on your home. These payments are typically paid twice per year and can be as high as 6 percent of your home’s value.