New York Codes, Rules and Regulations › Title 20 - DEPARTMENT OF TAXATION AND FINANCE › Chapter IV - Sales And Use And Other Miscellaneous Taxes › Subchapter B - Real Estate Transfer Tax › Part 575 - General Provisions › Section 575.11 - Examples of taxable and nontaxable conveyances

Current through Register Vol. 46, No. 28, July 10, 2024
(a) The
				  following are examples of conveyances which are subject to the real estate
				  transfer tax.
(1) A conveyance in exchange
				  for other property is taxable. If the other property is real property or an
				  interest therein, the tax will apply to both conveyances.
(2) A conveyance by a defaulting mortgagor or
				  debtor to the mortgagee or lienor, or its agent, nominee or an entity owned in
				  whole by such mortgagee or lienor, in lieu of an action to foreclose a mortgage
				  or lien, is subject to tax.
(i) In the case of
				  nonrecourse debt, where the grantee is the mortgagee or lienor, or its agent,
				  nominee or an entity wholly owned by such mortgagee or lienor and the amount of
				  any other liens or encumbrances as described in clause (
b
) of
				  this subparagraph secures nonrecourse debt only, consideration includes, but is
				  not limited to, the sum of the following:
(a)
				  the unpaid balance of the debt secured by the mortgage;
(b) the total amount of any other liens or
				  encumbrances remaining on the real property after the conveyance, whether the
				  underlying indebtedness is assumed or taken subject to (see section
				  575.1[d][1]  of
				  this Part for information on the treatment of continuing liens); and
(c) the sum of any other amount paid by the
				  grantee for the real property. This sum shall not include any state or local
				  transfer taxes paid by the grantee in connection with the conveyance, provided
				  that the grantee has not contractually assumed the liability for the payment of
				  such taxes or has not released its right to seek recovery of the payment from
				  the grantor.
(ii) In the
				  case of recourse debt, where the grantee is the mortgagee or lienor, or its
				  agent, nominee or an entity wholly owned by such mortgagee or lienor and the
				  amount of any other liens or encumbrances as described in clause
				  (i)(
b
) of this paragraph secures recourse debt only,
				  consideration includes, but is not limited to, the sum of the amounts described
				  in clauses (i)(
a
)-(
c
) of this paragraph.
Provided however, where the sum of the amounts described in
					 such clauses (
a
) and (
b
) of such subparagraph
					 exceeds the fair market value of the real property as of the date of
					 conveyance, such consideration shall be the fair market value of the real
					 property plus the amount described in such clause (
c
) of such
					 subparagraph as the aggregate amount of debt cancelled, assumed or taken
					 subject to in connection with the conveyance is limited to the fair market
					 value of the real property. For purposes of this subdivision, a debt is
					 recourse debt to the extent that, as of the date of conveyance, the grantor or
					 a person related to the grantor including any guarantor, bears the economic
					 risk of loss for the debt beyond any loss attributable to the value of the
					 property securing the debt.
Example 1:
Bank A made a nonrecourse loan of $10 million to individual
					 X secured by a mortgage on New York State real property owned by X. X also
					 provided a personal recourse guarantee of the last $1 million of the debt, that
					 is, if the value of the mortgaged real property decreased to less than $10
					 million X would be obligated to pay the difference between $10 million and the
					 value of the mortgaged real property to Bank A up to a maximum amount of $1
					 million. X defaulted on the loan. The real property was conveyed to Bank A in
					 lieu of foreclosure and, at the time of the conveyance, the real property had a
					 fair market value of $8 million. As a result of the conveyance the $9 million
					 nonrecourse component of the loan is discharged. Simultaneously, Bank A
					 discharged X from any obligation under the personal guarantee. The
					 consideration for the conveyance consists only of the $9 million nonrecourse
					 component of the loan that was discharged, as no part of the excess $1 million
					 personal obligation can be satisfied by the conveyance of the real
					 property.
Example 2:
Same facts as Example 1, except that instead of the
					 personal guarantee being on the last $1 million, X guaranteed the first $1
					 million
i.e.,
X would be liable for any deficiency only if the
					 mortgaged real property was worth less than $1 million. Since the fair market
					 value of the real property at the time of the conveyance was $8 million, there
					 was no continuing recourse exposure to X, and therefore the consideration for
					 the conveyance is equal to $10 million, which was the full amount of the
					 nonrecourse indebtedness discharged as a result of the conveyance of the real
					 property.
Debt that was originally nonrecourse and which was
					 converted to recourse debt will be so treated as recourse debt provided that
					 the conversion to recourse debt and the conveyance of the real property are
					 not, in substance, integrated steps or part of a plan to decrease the
					 consideration for the conveyance so as to decrease the tax for the
					 conveyance.
(3) A
				  conveyance pursuant to a mortgage foreclosure or any other action governed by
				  the provisions of the Real Property Actions and Proceedings Law, such as the
				  enforcement of a mechanic's lien pursuant to article 3 of the Lien Law, is
				  subject to tax. The consideration is determined as follows:
(i) In the case of a nonrecourse debt, where
				  the grantee is the mortgagee or lienor or its agent, nominee or an entity
				  wholly owned by such mortgagee or lienor, and the amount of any other
				  continuing liens or encumbrances secure nonrecourse debt only, consideration
				  includes, but is not limited to, the higher of the following:
(a) the sum of:
(1) the price paid by the grantee (the bid
				  price); and
(2) the total amount of
				  any other liens or encumbrances remaining on the real property after the
				  conveyance, whether the underlying indebtedness is assumed or taken subject to
				  (see section
				  575.1[d][1]  of
				  this Part for information on the treatment of continuing liens); or
(b) the sum of:
(1) the amount of the judgment of
				  foreclosure; and
(2) the total
				  amount of any other liens or encumbrances remaining on the real property after
				  the conveyance, whether the underlying indebtedness is assumed or taken subject
				  to (see section
				  575.1[d][1]  of
				  this Part for information on the treatment of continuing liens).
Provided however, in the case where the amounts described
					 in clauses (
a
) and (
b
) of this subparagraph
					 involve recourse debt only and the higher of such amounts exceeds the fair
					 market value of the real property at the time of the conveyance, then the
					 consideration is equal to the fair market value or the real property as of the
					 date of conveyance, since the aggregate amount of the debt cancelled, assumed
					 or taken subject to in connection with the conveyance is limited to the fair
					 market value of the real property.
(ii) Where a person unrelated to the
				  mortgagee or the lienor is the grantee and regardless of whether the debt is
				  recourse or nonrecourse, consideration includes, but is not limited to the sum
				  of:
(a) the amount of the bid price;
				  and
(b) the total amount of any
				  other liens or encumbrances remaining on the real property after the
				  conveyance, whether the underlying indebtedness is assumed or taken subject to
				  (see section
				  575.1[d][1]  of
				  this Part for information on the treatment of continuing liens).
For the purposes of this paragraph and paragraphs (2), (15)
					 and (16) of this subdivision a grantee is related to the mortgagee or lienor to
					 the extent that the mere change of identity or form of ownership exemption
					 provided at section 1405 (b)(6)  of the Tax Law would apply to a conveyance by
					 the mortgagee or lienor to the grantee.
(iii) Where the grantee is an entity
				  beneficially owned in part by the mortgagee or lienor and a person unrelated to
				  the mortgagee or lienor and the debt held by such mortgagee or lienor is
				  nonrecourse debt and any continuing liens or encumbrances secure nonrecourse
				  debt only, consideration includes, but is not limited to, the sum of clauses
				  (
a
) and (
b
) of this subparagraph:
(a) the higher of the sum of the following
				  multiplied by the percentage which represents the mortgagee's or lienor's
				  beneficial ownership interest in the grantee:
(1)
(i) the
				  bid price; and
(ii) the total
				  amount of any other liens or encumbrances remaining on the real property after
				  the conveyance, whether the underlying indebtedness is assumed or taken subject
				  to; or
(2)
(i) the amount of the judgment of
				  foreclosure; and
(ii) the total
				  amount of any other liens or encumbrances remaining on the real property after
				  the conveyance, whether the underlying indebtedness is assumed or taken subject
				  to (see section
				  575.1[d][1]  of
				  this Part for information on the treatment of continuing liens); and
(b) the sum of the bid
				  price, and the total amount of any other liens or encumbrances remaining on the
				  real property after the conveyance, whether the underlying indebtedness is
				  assumed or taken subject to, multiplied by the percentage which represents such
				  unrelated person's beneficial ownership interest in the grantee (see section
				  575.1[d][1]  of
				  this Part for information on the treatment of continuing liens).
(iv) Where the grantee is an
				  entity beneficially owned in part by the mortgagee or lienor and in part by a
				  person unrelated to the mortgagee or lienor and the debt held by such mortgagee
				  or lienor is recourse debt and any continuing liens or encumbrances secure
				  recourse debt only, consideration includes, but is not limited to, the sum of
				  clauses (iii)(
a
) and (
b
) of this
				  subparagraph.
Provided however, where the higher of the amounts described
					 in subclauses (iii)(
a
)(
1
) and
					 (
2
) of this paragraph exceeds the fair market value of the
					 real property multiplied by the percentage which represents the mortgagee's or
					 lienor's beneficial ownership interest in the grantee, then such portion of
					 consideration as described in such clause (
a
) is equal to the
					 fair market value of the real property multiplied by such percentage since the
					 aggregate amount of the debt cancelled, assumed or taken subject to in
					 connection with the conveyance is limited to the fair market value of the real
					 property multiplied by such percentage. (See subparagraph [2][ii] of this
					 subdivision for further information on recourse
					 debt.)
(4) A
				  conveyance to a corporation in exchange for shares of its capital stock is
				  subject to tax to the extent that there is a change in beneficial
				  ownership.
(5) A conveyance by a
				  corporation in liquidation or in dissolution to its shareholders is subject to
				  tax to the extent that there is a change in beneficial ownership.
(6) A conveyance of standing timber and mines
				  is subject to tax.
(7) A conveyance
				  by the United Nations, the United States of America, the State of New York, or
				  any of their agencies, instrumentalities or political subdivisions is subject
				  to tax unless the grantee is another of such governmental organizations or
				  entities.
(8) A conveyance by a
				  partner to the partnership as a contribution of partnership assets is subject
				  to tax to the extent that there is a change in beneficial ownership.
(9) A conveyance of a perpetual easement or
				  an easement for a term of years or part of a year is subject to tax.
(10) A conveyance from one spouse to the
				  other pursuant to the terms of a divorce or separation agreement is subject to
				  tax. (There is a rebuttable presumption in such case that the consideration for
				  the conveyance, which includes the relinquishment of marital rights, is equal
				  to the fair market value of the interest in the real property
				  conveyed.)
(11) A conveyance to
				  partners upon the termination and liquidation of a partnership is subject to
				  tax to the extent that there is a change in beneficial ownership.
(12) A conveyance by a sponsor to a
				  cooperative housing corporation is subject to tax. (Consideration in such case
				  includes the amount of cash received by the sponsor, the amount of any
				  mortgages, liens or encumbrances on the real property and the fair market value
				  of the shares in the cooperative housing corporation which are transferred to
				  the sponsor.)
(13) A conveyance of
				  real property to an industrial development agency (IDA) by a person who is not
				  the beneficiary of the IDA financing, at the direction of such beneficiary,
				  with such beneficiary subsequently leasing the property from the IDA, is
				  subject to tax. In such a conveyance, the beneficiary of the IDA financing and
				  not the IDA is deemed to be the grantee, and therefore the exemption described
				  at section
				  575.9(c)(1)  of
				  this Part does not apply.
(14) A
				  conveyance of real property by an IDA to a person who is not the beneficiary of
				  the IDA financing where such conveyance is made at the direction of such
				  beneficiary is subject to tax. In such a conveyance, the beneficiary of the IDA
				  financing is deemed to be the grantor of the conveyance.
(15)
(i) A
				  conveyance of real property pursuant to a secured party's enforcement of a
				  lien, security interest or other rights on or in shares of stock in a
				  cooperative housing corporation and/or associated proprietary lease, upon
				  default by a debtor is subject to tax. In such a conveyance, the grantor is the
				  defaulted debtor and the grantee is the secured party or its agent, nominee or
				  an entity wholly owned by such secured party who enforces such lien, security
				  interest or other rights on or in such shares and/or associated proprietary
				  lease(s). Consideration, in the case of nonrecourse debt, where the grantee is
				  the secured party, or its agent, nominee or an entity wholly owned by such
				  secured party, includes but is not limited to, the sum of the following:
(a) the unpaid balance of the debt secured by
				  the shares of stock in the cooperative housing corporation and/or associated
				  proprietary lease(s);
(b) the total
				  amount of any other liens, security interests or other obligations remaining on
				  the shares of stock in the cooperative housing corporation and/or associated
				  proprietary lease(s) after the conveyance, whether the underlying indebtedness
				  is assumed or taken subject to (see section
				  575.1[d][1]  of
				  this Part for information on the treatment of continuing liens);
(c) a pro rata portion of the total amount of
				  any other liens or encumbrances that remain on the real property of the
				  cooperative housing corporation after the conveyance. However, see section
				  575.1(d)(6)  of
				  this Part for information on the treatment of liens or encumbrances on the real
				  property of the cooperative housing corporation; and
(d) any other amount paid by the grantee for
				  the real property. This amount shall not include any state or local transfer
				  taxes paid by the grantee in connection with the conveyance, provided that the
				  grantee has not contractually assumed the liability for the payment of such
				  taxes or has not released its right to seek recovery of the payment from the
				  grantor.
(ii)
				  Consideration in the case of recourse debt, where the grantee is the secured
				  party, or its agent, nominee or an entity wholly owned by such secured party,
				  includes but is not limited to the sum of the amounts described in clauses
				  (i)(
a
)-(
d
) of this paragraph.
Provided however, where the sum of the amount described in
					 clauses (
a
) and (
b
) of such subparagraph
					 exceeds the fair market value of the shares of stock in the cooperative housing
					 corporation and/or associated proprietary lease(s) as of the date of the
					 conveyance, consideration shall be the fair market value of the shares of stock
					 in the cooperative housing corporation and/or associated proprietary lease(s)
					 being conveyed, plus the amounts described in such clauses (
c
)
					 and (
d
) of such subparagraph. (See subparagraph [2][ii] of
					 this subdivision for further information on recourse debt.)
Example 1:
A is the owner of 30 shares of stock in a cooperative
					 housing corporation related to a proprietary lease of a commercial unit. The 30
					 shares represent five percent of the total number of shares in the cooperative
					 housing corporation. The building of the cooperative housing corporation is
					 encumbered by the lien of a mortgage having a current unpaid balance of
					 $2,500,000. A's 30 shares have a fair market value of $1,200,000. A pledged its
					 30 shares to C as security for a loan of $1,600,000. The debt owed by A to C is
					 nonrecourse indebtedness. The current unpaid balance of the debt is $1,740,000,
					 including accrued interest. C is presently enforcing its security interest
					 against A's shares of stock in the cooperative housing corporation. The
					 consideration for the resulting conveyance is computed as follows:
Unpaid balance of debt
$1,740,000
Pro-rata portion of mortgage indebtedness ($2,500,000
								* 5%)
+
125,000
Consideration for conveyance
$1,865,000
Example 2:
Same facts as in example 1, except that the debt owed from
					 A to C is recourse indebtedness. The fair market value of A's shares of stock
					 in the cooperative housing corporation is less than the sum of the unpaid
					 balance of the debt ($1,740,000). The consideration for the resulting
					 conveyance is computed as follows:
Fair market value of the cooperative shares
$1,200,000
Pro rata portion of mortgage indebtedness ($2,500,000
								* 5%)
+
125,000
Consideration for conveyance
$1,325,000
(16) A conveyance of real property pursuant
				  to a secured party's enforcement of a lien, security interest or other rights
				  on or in shares of stock, partnership interests or other instruments, upon
				  default by a debtor (
i.e.,
the transfer or acquisition of a
				  controlling interest in an entity with an interest in real property), is
				  subject to tax. In such a conveyance, the grantor is the defaulted debtor and
				  the grantee is the secured party or its agent, nominee or an entity wholly
				  owned by such secured party who enforces such lien, security interest or other
				  rights on or in such shares, partnership interests or other instruments. The
				  consideration for such conveyances, where the grantee is the secured party, or
				  its agent, nominee or an entity wholly owned by such secured party, regardless
				  of whether the debt is recourse or nonrecourse, is the lesser of the following:
(i) the fair market value of the real
				  property as of the date of conveyance multiplied by the percentage in the
				  entity being transferred or acquired; or
(ii) the sum which includes, but is not
				  limited to, the following:
(a) a reasonable
				  apportionment to the interests in real property owned by the entity of the
				  unpaid balance of the debt secured by the ownership interest in the
				  entity;
(b) a reasonable
				  apportionment to the interests in real property owned by the entity of the
				  amount of any liens, security interests or other obligations remaining on the
				  ownership interest in the entity after the conveyance, whether the underlying
				  indebtedness is assumed or taken subject to;
(c) a reasonable apportionment to the
				  interests in real property owned by the entity of the amount of any liens or
				  encumbrances remaining on the real property of the entity multiplied by the
				  percentage in the entity being transferred or acquired (see section
				  575.1[d][1]  of
				  this Part for information on the treatment of continuing liens);
(d) a reasonable apportionment to the
				  interests in real property owned by the entity of the amount of any other debt
				  or obligation of the entity multiplied by the percentage in the entity being
				  transferred or acquired; and
(e) a
				  reasonable apportionment to the interests in real property owned by the entity
				  of any other amount paid by the grantee for the conveyance. Such amount shall
				  not include any state or local transfer taxes paid by the grantee in connection
				  with the conveyance, provided that the grantee has not contractually assumed
				  the liability for the payment of such taxes or has not released its right to
				  seek recovery of the payment from the grantor.
Example 3:
X is the owner of 100 percent of the voting stock in Y
					 Corporation. Y Corporation's only asset is a parcel of real property located in
					 New York State. The fair market value of the real property is $2,000,000. The
					 real property is encumbered by the lien of a mortgage having a current unpaid
					 balance of $1,500,000, held by B Bank. X pledged 60 percent of its Y voting
					 stock to Z as security for a debt of $400,000. The current unpaid balance of
					 the debt is $450,000, including accrued interest. Z is presently enforcing its
					 security interest in the voting stock of X. Z's enforcement of its security
					 interest in the voting stock of X results in both a transfer and acquisition of
					 a controlling interest. The consideration for the conveyance is computed as
					 follows:
(
a
) Unpaid balance of debt
$450,000
Pro rata portion of mortgage indebtedness ($1,500,000
								* 60)
+
900,000
Total,
$1,350,000
(
b
) FMV of real
								property-$2,000,000 * 60%=$1,200,000*
* The amount computed in (
b
) ($1,200,000)
					 is the consideration for the conveyance as it is less then the amount computed
					 in (
a
) ($1,350,000).
Example 4:
S is the owner of 100 percent of the voting stock of K
					 Corporation. K's assets consist of a parcel of real property located in New
					 York State and other tangible assets. The fair market value of the parcel of
					 real property is $2,100,000 and the fair market value of the other assets is
					 $300,000. The real property is encumbered by the lien of a mortgage having a
					 current unpaid balance of $700,000. Also, K Corporation has other debts
					 totaling $300,000. S pledged 60 percent of its voting stock to J as security
					 for a debt of $500,000. The current unpaid balance of the debt owed to J is
					 $550,000, including accrued interest. J is presently enforcing its security
					 interest in the voting stock owned by S. J's enforcement of its security
					 interest in the voting stock of S results in both a transfer and an acquisition
					 of a controlling interest. The consideration for the conveyance is computed as
					 follows: Reasonable apportionment based on fair market value of assets owned by
					 K Corporation:
(
a
) Unpaid balance of debt
$550,000
Part of mortgage indebtedness includible in amount to
								be apportioned ($700,000 * 60%)
420,000
Part of other debt of entity includible in amount to
								be apportioned (300,000 * 60%)
+
180,000
Amount to be apportioned
$1,150,000
Reasonable apportionment based on fair market value of
					 assets owned by K Corporation:
$1,150,000 *
					 $2,100,000/$2,400,000 =
					 $1,006,250*
(
b
) FMV of real
								property- $2,100,000 * 60%= $1,260,000
* The amount computed in (
a
) ($1,006,250)
					 is the consideration for the conveyance as it is less than the amount computed
					 in (
b
) ($1,260,000).