As part of the 2018 New York State Executive Budget, New York State Governor Andrew Cuomo has proposed significant changes to the real estate transfer tax (RETT). If the legislation is passed, it would expand the impact of the tax to include all transfers of interests in entities holding real property.
The New York real estate transfer tax is a tax on conveyance of real property wherein the consideration exceeds $500. It is calculated as 0.4% of the selling price. Additionally, there is a 1% tax applied to residences where the consideration is $1 million or more. This is commonly referred to as the “mansion tax.” Currently, the real estate transfer tax also applies to transfers of a controlling interest in an entity that owns real estate. A controlling interest is defined as 50% or more of the voting stock of a corporation. In the case of a partnership or other entity, a controlling interest is defined as 50% or more of the capital, profits or interest in the partnership or other entity.
Under the proposed legislation, the RETT would apply to all transfers of interests in entities that own real estate in New York (or an interest in real property) where the real property has a fair market value of 50% or more of all of the assets of the entity as of the transfer date. The tax would be calculated on the fair market value of all real property owned by the entity times the ownership percentage being transferred. For example, if a partner was selling a 10% interest in a partnership that owned a building with a fair market value of $10 million, the real estate transfer tax would be calculated on a value of $1 million.
The proposed changes would greatly increase the number of taxpayers subject to the RETT. This would increase the burden on taxpayers from both an administrative and financial standpoint. W&G will monitor the status of the proposed changes and provide an update when it is available.