For this week’s blog post I have decided to take a break. No, not a break from rate locks, pre-approvals, and processing loans, but just a break from writing about mortgages in general. Instead, I’ve recruited some help from my good friend and colleague, Bob Dubno. Being a prominent Real Estate attorney in the New York area, Bob has come across many clients who have gotten themselves into tricky situations because they just weren't informed. Below, he addresses some of these issues head on, and gives valuable advice to potential buyers who are looking to avoid some heavy costs.
Avoiding a Very Expensive Oversight
By Bob Dubno, Esq.
As most informed buyers have learned in their research into condominiums (as well as the less common new coops), one of the major closing costs to anticipate is the mansion tax. On any purchase of a condo, coop, or house where the purchase price is $1,000,000.00 or more, the buyer has to pay a tax of 1% of the purchase price. This, of course, is in addition to all the other closing costs associated with the purchase.
As those same informed purchasers have learned, in a strong real estate market there are some typical “seller’s costs” that can pass on to buyers by contractual agreement. Specifically, these are the New York City and New York state transfer taxes that amount to 1.425% and $4.00 per thousand of the purchase price.
As a Real Estate attorney, I’ve come across many cases where purchasers were excited that they dodged mansion tax because they negotiated a price just under $1,000,000. However, here’s how it got interesting! Once transfer taxes are computed, the forms require the inclusion of the buyer-paid transfer taxes in the consideration. What this means is that taxes will now be calculated on the combined sum of the purchase price and the transfer taxes. In other words, the buyer is taxed on the tax. No big deal, right? Wrong! Now, when you add the transfer taxes to the old purchase price (which was only just short of $1,000,000.00), the “new” consideration is now well over 1,000,000.00 and subject to mansion tax!
Therefore, an aggressive purchaser, who is reluctantly expecting to pay NY City and State transfer taxes, and also wants to avoid paying mansion tax, must negotiate a price to at least $19,000 below the $1,000,000.000 “magic number”.
Bob can reached at 718-789-7777 or at Bobdubno@gmail.com for any questions, comments or concerns.
Avoiding a Very Expensive Oversight
By Bob Dubno, Esq.
As most informed buyers have learned in their research into condominiums (as well as the less common new coops), one of the major closing costs to anticipate is the mansion tax. On any purchase of a condo, coop, or house where the purchase price is $1,000,000.00 or more, the buyer has to pay a tax of 1% of the purchase price. This, of course, is in addition to all the other closing costs associated with the purchase.
As those same informed purchasers have learned, in a strong real estate market there are some typical “seller’s costs” that can pass on to buyers by contractual agreement. Specifically, these are the New York City and New York state transfer taxes that amount to 1.425% and $4.00 per thousand of the purchase price.
As a Real Estate attorney, I’ve come across many cases where purchasers were excited that they dodged mansion tax because they negotiated a price just under $1,000,000. However, here’s how it got interesting! Once transfer taxes are computed, the forms require the inclusion of the buyer-paid transfer taxes in the consideration. What this means is that taxes will now be calculated on the combined sum of the purchase price and the transfer taxes. In other words, the buyer is taxed on the tax. No big deal, right? Wrong! Now, when you add the transfer taxes to the old purchase price (which was only just short of $1,000,000.00), the “new” consideration is now well over 1,000,000.00 and subject to mansion tax!
Therefore, an aggressive purchaser, who is reluctantly expecting to pay NY City and State transfer taxes, and also wants to avoid paying mansion tax, must negotiate a price to at least $19,000 below the $1,000,000.000 “magic number”.
Bob can reached at 718-789-7777 or at Bobdubno@gmail.com for any questions, comments or concerns.
