Aggregation of Residential Condominium Units Affects Mortgage Recording Tax Rate

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The New York City Register’s Office collects a mortgage recording tax whenever a mortgage is recorded in any of the five boroughs except for Staten Island.  The tax rate combines New York State and New York City Mortgage Recording Tax into one amount, which is based on the amount of the mortgage.  The New York City Department of Finance has a tax calculator to help you estimate how much the recording tax will be.

Although the mortgage recording tax may seem straight forward, there are instances when the percentage paid on the principle amount requires more analysis.  One situation where this has occurred is when condominium owners intended to purchase the unit next to their established unit, and then combine both to create a larger condominium.  Instead of borrowing a mortgage for the second unit while keeping the exiting unit’s mortgage intact, the purchasers decided to take out a larger mortgage to finance both units and thus the purchasers would have only one outstanding mortgage.

The issue that arose was which amount of principle to calculate the tax rate upon.  The State of New York Commissioner of Taxation and Finance issued an advisory opinion dated July 15, 2013, stating that when a mortgage secures a principle debt of $500,000 or more, the combined New York State and New York City mortgage recording tax will be the highest rate of 2.8 percent instead of the lower 2.175 percent for individual residential condominium units.  The advisory opinion held that the lower 2.175 percent applied because that would be the rate had the second unit been mortgaged independently.  Although the mortgage was covering both units, the purchasers already owned one of the units.  The analysis discussed facts that clearly showed the purchaser’s intention to combine the units into one, versus treating them as separate dwellings.  Based on the purchaser’s circumstances, the tax rate on the unit was the lower percentage as applicable to individual residential condominium units.

If you are purchasing property, contact an experienced real estate attorney who can guide you through the process, and protect your legal rights.  Call Georgaklis & Mallas PLLC at (718) 238-2400 or (212) 779-2400.      

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