Do I Need to Pay Transfer Taxes When Transferring Title?

Transfer taxes are generally the second-highest closing cost of real property transfers in New York. To transfer real property to someone else, either by sale, gifting, or by court order, the transfer must be done using a written legal instrument that meets the requirements of New York law. In this article, you will learn when you may need to transfer titles and what needs to be accomplished to make the transfer legally binding.   Keep in mind, it is important to speak with a qualified New York real estate attorney before you initiate real property transfer.  

When you’re a property owner, the element that shows you have control of the property is the title. Having a title in your name proves that you have ownership of the property. Once a property owner wants to get rid of their stake in a particular property, a real estate title transfer must be initiated. A real estate transfer is the legal process of transferring ownership from one party to another. You may want to transfer a property’s title once someone shows interest in the property a sale is closed or if you want to gift the property to someone such as a family member. A real estate title transfer will include a deed transfer of good title between the parties, to transfer real ownership from one party to another. 

In New York, real property is transferred by means of a deed. The deed must meet a number of requirements to be effective, such as:

1. The deed must be in writing and contain operative language that is sufficient to transfer property ownership.
2. The seller must have the legal right to sell the property.
3. The deed must identify the buyer (grantee) and the seller (grantor), provide a legal description of the property, and identify the purchase price.
4. The deed must be signed by the person transferring the property and a public notary must notarize the seller’s signature. 

Once the deed is signed and completed, the conveyance process is essentially completed. The deed will need to be recorded in the county where the property is located to provide protection against other claims to ownership of the property. A real property transfer form is required for all property transfers where a deed is filed. A filing fee is also required.

There are many different kinds of deeds. Which kind you use will depend on what rights are being transferred and who is transferring the rights. Deeds must be carefully drafted, delivered, and recorded. Working with an experienced title transfer attorney can help ensure that the transaction is done properly and avoid legal disputes. 

Which Situations May Require a Title Transfer? 

A title transfer may be required in the following situations:

• Adding a spouse or partner to a title;
• Removing a spouse or partner from a title;
• Transfer of title from an individual(s) into a Corporation, Partnership, LLC, or a Trust;
• Transfer from a company into personal names as tenants in common (could be required in situations with 1031 exchange when partners are wishing to split the partnership);
• Transfer from an estate to an individual’s personal name in the case of an inheritance. 

What Are the Standard Payments of Transfer Taxes?

In addition to the preparation of a deed, sellers must also be aware of transfer taxes imposed on the conveyance of real property. New York State imposes a real estate transfer tax on conveyances of real property or interest when the consideration exceeds $500. The tax is computed at a rate of two dollars for each $500 of consideration, which is 0.4%. New York State also imposes a ‘mansion tax’ on transfers of residential property where consideration is $1 million or more, but that is imposed on the buyer rather than the seller. 

New York City imposes an additional Real Property Transfer Tax (RPTT) which must be paid on transfers of real property. RPTT applies whenever the sale or transfer is more than $25,000. This includes state or federal government-owned property transferred to a non-government entity. New York City Transfer tax rates range from 1% to 2.625%, depending on the type of property and the selling price.  

On July 1, 2019, New York adopted legislation that increased the real estate transfer taxes on conveyances of real property located in New York City. The new legislation added an additional layer of transfer tax. In addition to the 0.4% tax, a tax of 0.25% is added when consideration for the entire conveyance of residential real property is $3 million or more, and for any other real property that is $2 million or more. The rates are published in Form TP-584-NYC-I, Instruction for Form TP-584-NYC. Feel free to use our calculator to estimate your closing costs for the deed transfers related to sales. 

Who Is Exempted From Paying Transfer Taxes?

Usually, the seller is responsible for paying the transfer taxes and unfortunately, most sellers are subject to the transfer tax. Essentially, the government is exempt from the tax. RPTT outlines specifically who is exempt from transfer tax in New York, including:

1. The United States Government and its agencies;
2. New York State, its agencies and political subdivisions; and
3. A foreign government, a person acting on behalf of a foreign government, or the head of a foreign government’s diplomatic mission. The premises must be used exclusively for diplomatic or consular purposes. Other usages may result in payment of the tax. 

If the government entity is transferring the property to a non-government entity, the non-government entity must file a return and pay the tax. 

In addition, there are properties that are exempt from the transfer tax but must be reported on an RPTT return. This includes a deed, instrument, or transaction:

1. To or from the United Nations or any other worldwide, international organization where the US is a member;
2. To or from a non-profit organization formed and operated exclusively for religious, charitable or educational purposes, or for the prevention of cruelty to children or animals;
3. To any government body exempt from payment of the tax.;
4. Given solely as security for a debt or a deed/instrument given solely to return such security;
5. From an agent, dummy, straw man, or conduit to his principal, or a deed, instrument, or transaction from the principal to his agency dummy, straw man or conduit;
6. Given by an executor outlined within the terms of a will. However, a deed given by an executor in connection with a sale of an interest in real property is taxable;
7. That affects a mere change of identity or form of ownership or organization but only to the extent that the beneficial ownership remains the same.

From the practical standpoint, it is important to know who are the parties to the Contract of Sale.

Do I Need To Pay Transfer Taxes When the Transfer Is a Gift?

A gift does not include the exchange of consideration and therefore is exempt from transfer taxes. However, New York Tax Law Sec. 1401 (d) defines consideration to also include the cancellation or discharge of an indebtedness or obligation, the amount of any mortgage, purchase money mortgage, lien, or other encumbrance, whether or not the underlying indebtedness is assumed or taken subject to. Therefore, when a gift includes the transfer of a mortgage liability on the property, the relief from indebtedness is considered as consideration on the property and transfer taxes do apply. 

Attorney advertisement. This article is for educational purposes only, not legal or tax advice. Prior results do not guarantee future outcomes. If you are in need of legal or tax advice related to title transfer, or whether a deed transfer would violate the terms of your mortgage; or advise you on the best way to take title (ex: tenants in common or joint tenants with right of survivorship), our experienced real estate attorneys may be able to help. Leave your contact details on our online form now to get in touch so you can make the process of buying and selling a home simultaneously go as smoothly as possible.

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