If you’re a serious real estate investor in NY, you know there are many taxes associated with buying, owning and selling a property. There are mansion taxes, transfer taxes and mortgage recording taxes among others. But one tax that often surprises first-time buyers is a flip tax. A flip tax is a fee charged to an apartment building for each time a resident sells their unit to another person. It is typically paid by the seller and can be negotiated as part of the terms of the sale.
The idea behind a flip tax is to help a co-op or condo build up its reserve funds by charging a fee every time someone sells their apartment. Co-ops that have a flip tax in place usually have higher reserves than those without one. It also helps deter “flippers,” who are people who buy and sell apartments in a short amount of time to make a profit without putting any money into the unit.
Flip taxes are more common in co-ops than they are in condos, but there are some condos that do have them as well. A flip tax is typically a percentage of the sales price or a flat dollar amount, which will vary by building. It is often spelled out in the proprietary lease or bylaws, though it is possible for a building to waive the fee for family transfers.
When a flip tax is in place, it can be negotiated between the buyer and seller as part of the purchase contract, with the fee being paid at closing. Some buildings also have the option to charge a flip tax to both parties at the same time, which is often the case when a buyer has to sell a previous apartment before buying their new one.
Historically, flip taxes were paid by the sellers, but since the housing market has slowed down, it’s become more common for the buyers to pay them. The buyers can argue that if they were to buy the unit at a lower price and pay the flip tax, they would be able to afford the building’s amenities and enjoy it for a long time.
If a building wants to change its flip tax, it needs to amend its proprietary lease and bylaws, which requires approval from a majority of the shareholders. It’s important for the board to present a united front when supporting the change and explain to shareholders how it will benefit them. They should also hold informational meetings and answer any questions. Finally, the board should not try to amend the proprietary lease at a single meeting but instead request that individual shareholders provide consent to the change over a certain period of time. This way, they can avoid a majority vote and potentially get the project voted down.
When you're buying a co-op apartment in NYC, there are many fees and taxes that you'll need to pay upon closing. These include the seller's broker commission, the transfer tax and the mortgage recording tax. But there is another fee that buyers often don't think about, which is the flip tax. The flip tax is an additional fee imposed by the building to help with their capital reserve fund.
The average flip tax in NYC is 1% to 3% of the sale price and it's customarily paid by the seller. While flip taxes are more common in co-ops, you can occasionally find condos that charge a flip tax in NYC as well. The flip tax is usually documented in the co-op's proprietary lease and By-laws. It is payable in addition to the NYC and NYS transfer taxes that sellers are required to pay.
A co-op's flip tax is a fee, not a property tax, and as such, it's not deductible on your taxes. It was originally implemented when many rental buildings converted to co-ops and needed a way to increase their reserves without raising the maintenance fees for current residents.
Each co-op's flip tax is different and it's important to always ask your buyer's broker to check the specifics of a particular building's policy. You should also review the co-op's By-laws and proprietary lease to see if there are any exceptions to the flip tax like transfers to spouses, permanent companions or immediate family members.
It's important to know whether a flip tax is in place before you start submitting offers on an apartment. Your buyer's broker can confirm this for you or you can ask the managing agent directly. If the building does have a flip tax, you should factor it into your offer price.
Flip taxes are an ongoing source of revenue for many co-ops and they're unlikely to be repealed any time soon. They are a way to encourage owners to sell at a profit and reduce turnover in the building, which helps the building's finances.
Ultimately, the decision to have a flip tax or not is up to each individual building and will depend on the needs of their community. As long as the flip tax is clearly documented in the building's By-laws and voted on by shareholders, it can stay in place.
The real estate market has been a bit slower than usual in the New York City area, especially for coops and condos. As a result, co-op boards are making some changes to their flip taxes to generate additional revenue and discourage speculators from purchasing and selling their apartments so quickly. Flip taxes are typically a private fee that is imposed on sellers by their building’s board and can range from 1 to 3% of the sale price. The fee goes towards the co-op’s reserve fund and is customarily paid by the seller, but can be negotiated by both parties depending on current market conditions.
Cooperative housing, or co-ops, are corporations that own apartment buildings with residents acting as shareholders. When an apartment in a co-op is sold, it’s not really a property sales transaction; rather, the ownership of shares in the corporation is transferred. As such, co-op board regulations allow a “flip tax,” also known as a transfer fee, to be charged when a shareholder transfers their shares in the company. The exact amount of a flip tax can vary by building, and it may be listed in the original offering plan, proprietary lease or by-laws. It’s usually a fee paid by the seller, but some buyers agree to pay it in order to close the deal. It’s usually spelled out in the sales contract which party is responsible for paying the flip tax, and the co-op board is generally not concerned with who pays it as long as it’s paid.
Flip taxes were originally introduced in the 1970s when many rental buildings were converted into co-ops. At that time, many of these buildings were run-down and in need of significant upgrades and improvements. By imposing flip taxes, the co-ops were able to generate revenue from the sales of their apartments to pay for these upgrades and help build up the reserves.
Now, flip taxes are still a common feature in many NYC co-op buildings and are even becoming more popular in condos, where they’re often used to generate income and deter sellers from speculating on properties. It’s important for all new and existing homeowners to understand how flip taxes work so they can avoid a surprise when they sell their homes.
Whether you’re an experienced investor or new to the market, a reputable New York City real estate lawyer can be your trusted advocate. We can walk you through the complicated process of buying or selling a home and help you navigate any issues that arise. For more information, contact us today to set up a consultation. We look forward to hearing from you!
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