There Are Two New York Real Estate Transfer Tax Proposals To Watch In Governor Cuomo's Proposed Budget

New York Governor Andrew Cuomo introduced his FY 2018 budget proposal on January 17. The proposal includes several significant revenue-raisers, including a few that could impact the New York real estate market.

Income Tax - Sourcing of Gain From Sale of Interests in Entities Holding Co-op Shares - Currently, if an individual who is not a New York resident sells shares in a cooperative housing corporation that holds New York real property, any resulting gain is treated as New York-source income, subject to New York personal income tax. However, current law is unclear as to whether a similar sourcing rule applies to gain from the sale of ownership interests in other legal entities where more than 50% of the entity's assets consist of shares in a cooperative housing corporation that owns New York real estate. As a consequence, some nonresidents planning the sale of shares in a New York co-op will first contribute the shares to an entity, such as a partnership, and then sell the interests in the entity, taking the position that the resulting gain is not New York-source income. The proposal would end this sourcing play by expanding the definition of New York real property for personal income tax purposes to include ownership interests in entities that own shares of cooperative housing corporations that own co-op units located in New York. Real Estate Transfer Tax - Elimination of Partnership "Loophole" - Under current law, New York real estate transfer tax applies to transfers of a controlling interest in certain legal entities that hold an interest in New York real property. New York Tax Law § 1401(e). This provision does not prevent property owners from conveying a less than controlling interest in New York real property free of transfer tax by first contributing the property to a legal entity, and then selling a less than 50% interest in the legal entity to the intended transferee. The proposal would close this "loophole" by expanding the definition of "conveyance" for purposes of the transfer tax to include all transfers of...