What Is A NYC Flip Tax?
The NYC Flip Tax
Q: What is a Flip Tax?
A: A private Transfer Fee
The flip tax is not a tax from the government it is a private transfer fee that many new york coops impose on shareholders. In the late seventies and early '80s when many rental buildings were converted, huge profits were being made by former renters who bought their units at inside prices and then resold them. Called "flipping" The boards decided to impose the transfer fee and call it a flip tax on sellers to dissuade flipping.
Due to the high costs of operating and maintaining their buildings, many coops and condos need to build their reserve fund by either trying to impose a flip tax or succeeding at imposing a flip tax usually imposed on sellers. In order for the flip tax to pass most bylaws/ proprietary leases require 2/3 majority of the shareholders to vote in favor of it. It requires a quorum. An absent vote is a no vote.
A flip tax is a restrictive covenant. All co-ops and 99% of Manhattan condos have restrictive covenants. "A provision in a deed limiting the use of the property and prohibiting certain uses". A coop’s flip tax can affect the maximum loan amount a bank extends to a buyer
Condo and condop buildings can also legally have a flip tax. Although not as common as in coops. Condos often have many investor owners from out of town which makes it difficult to pass a 2/3 majority if governing documents allow changes by vote since an absent vote is a no vote.
The terms "limited equity" or "shared equity" are terms related to the flip tax. A seller's equity is limited and or shared with the housing corporation via the flip tax.
HDFC coops (an NYC affordable housing program) usually have a flip tax as a way to keep the buildings affordable. An HDFC flip tax can be as high as 30% of the profit. Often in the early years of the coop's incorporation, it may be 70% to the coop and 30% to the seller. Most HDFC coops eventually either vote a lower flip tax to a maximum of 15%-30% of profit or it was in the original bylaws specifying time frames. Many have significantly lower flip tax and often the flip tax has been tiered by the number of years. Often it is lowered by shareholders after the regulatory agreement with NYC expires.
There are several ways a coop can attempt to impose the flip tax. There are arguments on both sides for every type. It is an easy way to get 2% sometimes 3% - 5% of a unit's sale price or percent of the seller's profit. The average apartment in Manhattan is over $1 million. Do the math. Buildings have figured 5-10 transfers a year what a nice windfall for them.
The contract of sale should clearly identify which party pays the flip tax. Everything in real estate including a flip tax may be negotiated between the buyer and seller.
A coop's flip tax can affect the loan amount
Q: What is a Flip Tax?
A: A private Transfer Fee
The flip tax is not a tax from the government it is a private transfer fee that many new york coops impose on shareholders. In the late seventies and early '80s when many rental buildings were converted, huge profits were being made by former renters who bought their units at inside prices and then resold them. Called "flipping" The boards decided to impose the transfer fee and call it a flip tax on sellers to dissuade flipping.
Due to the high costs of operating and maintaining their buildings, many coops and condos need to build their reserve fund by either trying to impose a flip tax or succeeding at imposing a flip tax usually imposed on sellers. In order for the flip tax to pass most bylaws/ proprietary leases require 2/3 majority of the shareholders to vote in favor of it. It requires a quorum. An absent vote is a no vote.
A flip tax is a restrictive covenant. All co-ops and 99% of Manhattan condos have restrictive covenants. "A provision in a deed limiting the use of the property and prohibiting certain uses". A coop’s flip tax can affect the maximum loan amount a bank extends to a buyer
Condo and condop buildings can also legally have a flip tax. Although not as common as in coops. Condos often have many investor owners from out of town which makes it difficult to pass a 2/3 majority if governing documents allow changes by vote since an absent vote is a no vote.
The terms "limited equity" or "shared equity" are terms related to the flip tax. A seller's equity is limited and or shared with the housing corporation via the flip tax.
HDFC coops (an NYC affordable housing program) usually have a flip tax as a way to keep the buildings affordable. An HDFC flip tax can be as high as 30% of the profit. Often in the early years of the coop's incorporation, it may be 70% to the coop and 30% to the seller. Most HDFC coops eventually either vote a lower flip tax to a maximum of 15%-30% of profit or it was in the original bylaws specifying time frames. Many have significantly lower flip tax and often the flip tax has been tiered by the number of years. Often it is lowered by shareholders after the regulatory agreement with NYC expires.
There are several ways a coop can attempt to impose the flip tax. There are arguments on both sides for every type. It is an easy way to get 2% sometimes 3% - 5% of a unit's sale price or percent of the seller's profit. The average apartment in Manhattan is over $1 million. Do the math. Buildings have figured 5-10 transfers a year what a nice windfall for them.
- A percentage usually 2% but sometimes 3%
- A flat fee
- Percent of profit
- Dollar amount per share
Management companies and boards lobby the shareholders about why a flip tax is good. They argue if they have this reserve fund from the flip tax they won't have to raise maintenance or have assessments.
Elderly people planning on leaving the apartment to their children don't care as that is an exemption in many proprietary leases.
People who recently bought and have to be relocated feel it's unfair as they have not been there that long.
Long-time residents feel they stuck it out and have already paid for all assessments over the years.
Most flip taxes are imposed on the seller. But some high-end coop buildings such as The Dakota and buildings on Park and Fifth Avenues impose the flip tax on the buyer.
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| The Dakota |
People who recently bought and have to be relocated feel it's unfair as they have not been there that long.
Long-time residents feel they stuck it out and have already paid for all assessments over the years.
Most flip taxes are imposed on the seller. But some high-end coop buildings such as The Dakota and buildings on Park and Fifth Avenues impose the flip tax on the buyer.
If the flip tax is based on profit, some buildings allow it to be net profit and some based on gross.
The contract of sale should clearly identify which party pays the flip tax. Everything in real estate including a flip tax may be negotiated between the buyer and seller.
A coop's flip tax can affect the loan amount
Do you still have to pay a capital gain tax to NYS/IRS if you pay the flip tax to the board, or does that one offset the other?
ReplyDeleteYes, the flip tax is a private transfer tax. However it will offset or lower your net profit/ capital gain and if it's your primary residence there is a $250K capital gain exemption for single person and $500K for a married couple.
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