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What Is the Average Flip Tax in NYC and Who Pays It?

Posted by hauseit on February 23, 2018
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What is the typical co-op flip tax in NYC? If you are considering selling an apartment in NYC, you’ve probably heard that most co-ops have an additional closing cost for sellers called a flip tax. Surprisingly enough, even some condos in NYC have a flip tax!

In this article, we explain everything you need to know about co-op and condo real estate flip taxes in NYC.

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What is the flip tax in NYC?

A flip tax is a transfer fee charged by a co-op (or condo) on the sale or transfer of an apartment. The amount of the flip tax varies by building in NYC, and the flip tax is usually paid by the seller. The flip tax charged by a building is typically documented in its proprietary lease and by-laws. It’s important to note that any flip tax payable on your sale is an additional closing costs on top of the standard NYC and NYS transfer taxes paid by sellers.

Thanks to NYC’s typical 6% real estate commission, closing costs for sellers in NYC are sky high and can often exceed 8% of the sale price. Flip taxes in NYC come in many shapes and sizes, and the most common flip tax is a small percentage of the gross sale price. Although you cannot avoid paying a flip tax if your building charges one, there are ways for you to significantly reduce or fully eliminate the average 6% NYC real estate commission when selling.

Flip taxes came about as a solution for the 1970s housing crisis in NYC. During this time, there was a wave of co-op conversions throughout the city as buildings were privatized. The buildings being privatized were often run down and in dire need of major capital investment.

Thanks to NYC’s typical 6% real estate commission, closing costs for sellers in NYC are sky high and can often exceed 8% of the sale price. Flip taxes in NYC come in many shapes and sizes, and the most common flip tax is a small percentage of the gross sale price.

Although you cannot avoid paying a flip tax if your building charges one, there are ways for you to significantly reduce or fully eliminate the average 6% NYC real estate commission when selling.

Flip taxes came about as a solution for the 1970s housing crisis in NYC. During this time, there was a wave of co-op conversions throughout the city as buildings were privatized. The buildings being privatized were often run down and in dire need of major capital investment. At the same time, many of the rent-stabilized tenants who resided in these buildings were offered substantially discounted, ‘insider’ prices to purchase. To prevent flipping and address the major capital investment needs of the buildings, many co-ops implemented flip taxes on resales.

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What is the average flip tax in New York City?

The average flip tax in NYC is a few percentage points of the sale price. However, flip taxes in NYC come in many shapes and sizes.

Flip taxes in NYC can be structured in any of the following ways:

  • Percentage of the gross sale price – i.e. 1.5% of the purchase price

  • Set dollar amount per co-op share owned – i.e. $50 per share

  • Flat-fee flip tax – i.e. $2,500

  • Percentage of sale profits – i.e. 15% of profits

  • Hybrid of any of the above flip tax formats – i.e. $2,000 plus $25 per share

Flip taxes in NYC are typically paid by sellers, however virtually everything in a NYC real estate deal is negotiable. The sale contract will specify who has agreed to pay the flip tax due to the co-op (or condo).

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Who pays the flip tax in NYC?

The flip tax in NYC is usually paid by sellers, however everything is negotiable. In rare instances, the co-op may specify that the flip tax is paid by buyers. Your real estate purchase contract will specify whether the buyer or seller has agreed to pay the flip tax.

Flip taxes charged to buyers are often phrased as ‘capital contribution fees.’ If you are buying a condo in NYC, there’s a chance that you will be asked to make an initial capital contribution to the building’s reserve fund. A typical capital contribution is usually a few months’ worth of common charges (or some fixed contribution amount). We discuss capital contribution fees in greater detail below.

The flip tax in NYC is a transfer fee charged by co-ops and some condos, while the transfer tax is a city and state government transfer tax payable on all sales in NYC.

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How much is the typical NYC co-op flip tax?

The typical NYC co-op flip tax is 1-3% of the gross sale price. However, each co-op’s flip tax policy is unique and there is simply no way to generalize.

To confirm your co-op’s flip tax amount, you can contact the managing agent or ask your buyer’s agent to find out on your behalf. The flip tax amount may also be listed on the co-op’s purchase application.

Flip taxes for co-ops in NYC can also be structured as a flat fee, a flat fee per share or a percentage of your profits from the sale.

If the co-op has a per-share flip tax, you simply take the number of shares assigned to your unit and multiply that by the per-share flip tax amount.

For example, if your apartment has 100 shares and the flip tax is $25/share, the flip tax is: 100 x $25 = $2,500.

If your co-op charges a flip tax on your profits, you should confirm how the co-op calculates your cost basis. Do they allow you to include improvements in your cost basis?

The flip tax in NYC is a common closing cost for both co-op and condo sellers. Learn what the typical real estate flip tax is in New York City, who pays the apartment flip tax, and the difference between flip taxes, transfer taxes and capital contributions in NYC real estate.

The typical NYC co-op flip tax is 1-3% of the gross sale price. However, each co-op’s flip tax policy is unique and there is simply no way to generalize.

To confirm your co-op’s flip tax amount, you can contact the managing agent or ask your buyer’s agent to find out on your behalf. The flip tax amount may also be listed on the co-op’s purchase application.

Flip taxes for co-ops in NYC can also be structured as a flat fee, a flat fee per share or a percentage of your profits from the sale.

The flip tax in NYC is a common closing cost for both co-op and condo sellers. Learn what the typical real estate flip tax is in New York City, who pays the apartment flip tax, and the difference between flip taxes, transfer taxes and capital contributions in NYC real estate.

If the co-op has a per-share flip tax, you simply take the number of shares assigned to your unit and multiply that by the per-share flip tax amount. For example, if your apartment has 100 shares and the flip tax is $25/share, the flip tax is: 100 x $25 = $2,500.

If your co-op charges a flip tax on your profits, you should confirm how the co-op calculates your cost basis. Do they allow you to include improvements in your cost basis?

Here is an example of how a NYC co-op flip tax on sale profits is calculated:

Flip Tax: 10% on sale profits
Basis Calculation: Purchase price plus any documented capital expenditures
Purchase Price: $250,000
Improvements: $100,000
Sale Price: $900,000
Profit: $900,000 – ($250,000 + $100,000) = $550,000
Flip Tax: 10% x $550,000 = $55,000

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Can a co-op or condo in NYC change its flip tax?

Yes, a co-op or condo in NYC can change its flip tax by amending the proprietary-lease and by-laws by receiving approval from a majority of the shareholders. Flip taxes cannot be unilaterally imposed by the board without a shareholder vote.

Here is an example of an amendment to a NYC co-op proprietary lease and coop By-laws which calls for the implementation of a flip tax (percentage of sale proceeds):

“Notwithstanding anything to the contrary herein, effective on the Effective Date, simultaneous with any transfer of the shares or assignment of this Lease, lessee shall pay, or shall cause to be paid, to Lessor, by bank check or certified check drawn on a New York Bank, or by wire transfer of immediately available funds, payable to Lessor, consideration for such transfer of the shares and assignment of this lease (the ‘Transfer Fee’) in the amount of one percent (1%) of the gross sales price or other consideration paid for an apartment sold pursuant to a contract of sale dated on or after ____ (the “Effective Date”). Such transfers will be conditioned upon payment of the Transfer Fee to the Corporation. The Transfer Fee shall be deposited into the Corporation’s reserve fund and used soley for capital expenditures of the Corporation.

However, the transfer fee shall not apply to a transfer of the shares and assignment of this lease: (a) by a holder of Unsold Shares, (b) to Lesee’s spouse, a permanent companion of Lessee of the same or opposite sex or domestic partner of Lessee in each case residing with Lessee in Lessee’s apartment, (c) to Lesee’s adult children, (d) to a person or persons taking ownership of shares as an heir or legatee of Lessee, (e) by Lessee to a trust in which Lessee or any of the individuals described in (b) or (c) above is the beneficiary, or in which (i) the beneficiaries are Lessee’s minor children, and (ii) the trustee is an adult, or (f) to the estate of a deceased Lessee  or by Lessee’s estate to a member of the immediate family of the deceased Lessee.

Notwithstanding anything to the contrary contained or implied in this section, the parties to a sale transaction, which would be subject to the Transfer Fee, may determine, by contract, the party who will be responsible for payment of the Transfer Fee due with respect to such transaction.”

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Are real estate flip taxes in NYC tax deductible?

You can usually reduce your taxable capital gains as a seller by subtracting the flip tax as an additional cost of the sale (alongside broker commissions, for example). With that said, we suggest you consult your attorney and tax professional for specific advice!

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Are flip taxes payable on transfers to family members?

Most co-ops will waive the flip tax if you are simply transferring your co-op to a spouse, permanent companion, children, or immediate family. However, each building has its own language and exceptions for the flip tax. The only way to confirm whether family transfers are exempt from a co-op’s flip tax is to check in the proprietary lease and By-laws.

Here is an example of language which specifically excludes a number of family transfers from having to pay the flip tax:

However, the transfer fee shall not apply to a transfer of the shares and assignment of this lease: (a) by a holder of Unsold Shares, (b) to Lesee’s spouse, a permanent companion of Lessee of the same or opposite sex or domestic partner of Lessee in each case residing with Lessee in Lessee’s apartment, (c) to Lesee’s adult children, (d) to a person or persons taking ownership of shares as an heir or legatee of Lessee, (e) by Lessee to a trust in which Lessee or any of the individuals described in (b) or (c) above is the beneficiary, or in which (i) the beneficiaries are Lessee’s minor children, and (ii) the trustee is an adult, or (f) to the estate of a deceased Lessee  or by Lessee’s estate to a member of the immediate family of the deceased Lessee.

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Is the transfer tax the same as the flip tax in NYC?

All sales in New York City are subject to both NYS and NYC government transfer taxes, which are between 1.425% and 1.825%. While a co-op (or condo) flip tax is often called a ‘transfer tax,’ it is not technically a tax but rather a fee because it is not being collected by a government entity.

The largest closing costs for sellers in NYC are as follows:

  • 6% – Broker commissions

  • 1.425%-1.825% – NYS & NYC transfer taxes

  • 1-2% – Flip tax (varies by building)

You can review the full list of seller closing costs in NYC by reading Hauseit’s comprehensive NYC closing cost guide. The easiest way to reduce your seller closing costs is to list FSBO or list with a full-service agent for just 1% commission.

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What is a capital contribution fee in NYC real estate?

If you’ve looked at condos or have considered buying a new development, chances are that you’ve seen a capital contribution fee listed as one of your buyer closing costs. Many condos and new developments charge buyers a capital contribution fee. The capital contribution fee is typically a few months’ worth of the apartment’s common charges.

Often times a new development will charge buyers two separate capital contribution fees. The first capital contribution fee, usually a few months’ worth of your apartment’s common charges, is the traditional way the building builds up is capital reserve fund. The second capital contribution fee may be a per-unit charge to help fund and pay for the live-in super’s apartment.

The largest closing costs for buyers in NYC are as follows:

  • 2.05-2.80% – NYC/NYS mortgage tax (if financing)

  • 1% – Mansion tax (if purchasing a property $1m or above)

  • 1.425%-1.825% – NYC/NYS transfer tax (only for new construction or sponsor sales)

You can save $20,000 or more and reduce your buyer closing costs by requesting a discreet NYC broker commission rebate through an one of our brand name partner brokers. Buyer broker rebates in NYC are completely legal and non-taxable.

P.S. Discretion is very important when requesting a real estate rebate in NYC’s traditional brokerage environment. Our partner brokers never openly discount or tarnish their reputations in any way, which means you can discreetly and safely receive a commission rebate without jeopardizing your deal by offending the seller or listing agent.

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Disclosure: Hauseit and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.

8 thoughts on “What Is the Average Flip Tax in NYC and Who Pays It?

  • Violet
    on February 25, 2018

    Never realized how high closing costs are in NYC! So informative 🙂 paying a flip tax of 1-3% on top of a 6% commission bill can wipe out 10% of my profit.

    • hauseit
      on February 28, 2018

      Well said, Violet! It’s true that closing costs in NYC are unreasonably high for sellers! Here is a complete list of seller closing costs in NYC: https://www.hauseit.com/closing-costs-nyc/

  • Andrew
    on February 27, 2018

    That was informative! It’s interesting it’s referred to as a “tax”, even though it’s technically a fee. The whole time I was reading that I was wondering why it’s referred to as a tax, but later on you clarified. That, on top of the standard taxes and commission really add to the closing costs!

    • hauseit
      on February 28, 2018

      Hi Andrew – it sounds like you are a well educated and informed reader! We’d love for you to join the broader discussion about NYC real estate in our forum: https://www.hauseit.com/forum/

  • Margaret J.
    on May 4, 2018

    I am evaluating a HDFC coop in NYC to make an offer on. This is their flip tax policy. I know HDFC coops are harder to resell, but I didn’t realize their flip taxes are so much higher? Is this the norm? I have included the HDFC coop flip tax policies below.

    The current Corporation flip tax and capital improvement policy for shareholders residing in the building for more than five (5) years is that the selling shareholder can recoup his/her original purchase price, $65,000 in capital improvements, the realtor’s fee, and an 85/15% split of the difference: with 85% going to the selling shareholder and 15% to the Corporation. Below are the calculations for ______________’s sale:

    1. _________________ purchased the shares for apartment # __ on __________ for ____________.
    2. _________________ is selling his shares for ____________.
    3. As _______________________has resided in the building for more than five (5) years, he is entitled to $65,000 in capital improvements.
    4. The seller’s realtor is due 6% of the selling price, __________________.
    5. When the original purchase price of ___________, the capital improvement of __________________, and the realtor fee of $___________________ are deducted from the selling price of $_____________________, the balance is $_________________.
    6. 85% of $______________________ is $___________________ and is due _________________
    15% of $______________________ is $____________________ and is due the Corporation.

    The seller and purchaser will be responsible for the Corporation’s attorney fees.

  • Chris Ebert
    on May 29, 2018

    I have something to add to your Who Pays The Flip Tax section. To my understanding, the coop proprietary lease actually is silent and usually does not specify who actually pays the flip tax. Therefore it is simply custom that the seller pays the flip tax.

    This custom is reversed in some neighborhoods like Sutton Place where buildings usually expect and ask the buyer to pay the flip tax!

  • Carol Daane
    on June 12, 2018

    Is there a law prohibiting sponsors from being levied the same flip tax as other coop owners?

  • James M.
    on June 12, 2018

    Carol, don’t think there’s a law per se as much as what sponsors have written in the original offering plan. Pretty much the original condo or coop offering plan allows special rights and privileges to the sponsor and sponsor units. These include the ability to rent out sponsor units indefinitely, no need for board approval and not needing to pay flip tax!

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