Jul 2021

AMENDMENT TO TAX LAW SECTION 1404(A) Regarding Calculation of New York State Transfer Taxes (Grossing Up)

By admin

The Good News is that as of July 1, 2021, New York State Transfer Taxes and the Mansion Taxes are no longer grossed up.  The Bad News is that New York City Transfer Taxes are still grossed as this amendment affects New York State Transfer Taxes only.  I guess New York City was not in a good mood when these discussions were happening.  We can only hope that New York City will eventually follow New York State’s lead in enacting a similar amendment in the future.  See below regarding said Amendment.  

New York State Tax Law Section 1404(a) has been amended effective July 1, 2021 in accordance with Part O of Senate Bill 2509-C/Assembly Bill 3009-C, which were signed into law as part of the New York State Budget for 2021/2022. This amendment applies to conveyances which occur on or after July 1, 2021, other than such conveyances which are made pursuant to binding written contracts entered into on or before April 1, 2021, provided that the date of execution of such contract is confirmed by independent evidence, such as the recording of the contract, payment of a contract deposit, or such other facts and circumstances as determined by the commissioner of taxation and finance.

The requirement to “gross up” the taxable consideration has now been eliminated when calculating New York State Real Estate Transfer Tax (RETT) and Mansion Taxes on the conveyancing of a one to three family residential dwelling, an individual residential condominium and an individual residential cooperative unit, or interests therein, when the contract of sale places the burden of such transfer tax upon the grantee.

RETT and New York City Real Property Transfer Taxes (NYCRPT) are payable by the Grantor, unless the Grantor is exempt, although the Grantor, unless exempt, and the Grantee would remain jointly and severally liable for such taxes. When the obligation to pay such transfer taxes is imposed upon the grantee by contract, these additional transfer taxes are added to the contract price as additional consideration, hence, “grossing up”. The amendment to Tax Law Section 1404(a) sets forth that this “grossing up” no longer is applicable “In the case of a conveyance of residential real property as defined in subdivision (a) of section fourteen hundred two-a of this article, if the tax imposed by this article is paid by the grantee pursuant to a contract between the grantor and the grantee, the amount of such tax shall be excluded from the calculation of consideration subject to tax under this article.” Pursuant to Tax Law § 1402-a(a), “residential real property shall include any premises that is or may be used in whole or in part as a personal residence, and shall include a one, two, or three-family house, an individual condominium unit, or a cooperative apartment unit.

Grossing up for purposes of calculating NYCRPT are not subject to this amendment to the New York State Tax Law, and presumably shall continue.

Additionally, Amended Tax Law Section 1404(a) now provides the grantee “a cause of action against the grantor for recovery of payment of such tax, interest and penalties” in the event the grantor fails to pay said RETT.

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