July 2, 2021 | New York State Tax Law Section 1404(a) Amended Gross-Up of Transfer Tax on Residential Property Where Purchaser Pays NYS Transfer Tax

New York State Tax Law Section 1404(a) has been amended effective as of July 1, 2021. This amendment applies to transactions dated on or after July 1, 2021 other than conveyances that are made pursuant to binding written contracts entered on or before April 1, 2021, provided that the date of execution of such contract is confirmed by independent evidence, such as the recording of the contract, payment of a deposit or other facts and circumstances as determined by the commissioner of taxation and finance.

 

Under the revised law, if the conveyance is of residential real property and the grantee pays the NYS transfer tax, the NYS transfer tax is no longer included as a part of the taxable consideration, and the ultimate NYS transfer tax to be paid by the grantee is no longer “grossed up.”

 

The requirement to “gross up” the taxable consideration has now been eliminated when calculating New York State Real Estate Transfer Tax (RETT) and Mansion Taxes on the conveyancing of a one to three family residential dwelling, an individual residential condominium and an individual residential cooperative unit, or interests therein, when the contract of sale places the burden of such transfer tax upon the grantee.

 

Additionally, Amended Tax Law Section 1404(a) now provides the grantee “a cause of action against the grantor for recovery of payment of such tax, interest and penalties” in the event the grantor fails to pay said RETT.

 

NOTE: This applies only to the NYS transfer tax. Local transfer taxes may still be subject to the “gross up.” Grossing up for purposes of calculating NYCRPT are not subject to this amendment to the New York State Tax Law, and presumably shall continue.