New York has a convoluted tax system that is known to drive up costs for many homeowners. Tax rates vary across the state and the impacts can be quite drastic. This guide, and working with a local real estate agent, will guide you through the tax implications of buying or selling your New York home.
Sorting out what property taxes or real estate taxes are applicable when buying or selling in New York can be a bit complicated. The state has many tax rates that vary from city to city across the state, and of course New York City has its own separate tax structure.
Having a solid grasp of these tax implications before closing on your New York home can make a difference on whether or not, and even when, to buy or sell. That may seem dramatic, but in a state with a median home price of about $300,000, taxes can add up quickly.
Property values are even higher in specific regions of the state. The New York City area has values almost twice as high, and many local counties and cities have their own taxes that further add up depending on the market value of local real estate.
By following this guide, you can prepare for the tax implications of your New York home sale. However, a local, expert real estate agent can best prepare you for the applicable taxes and guide you through the home buying process.
Will You Have to Pay Taxes When You Sell Your Home in New York?
When selling your home, the tax that can have the biggest impact is the capital gains tax. Capital gains is the profit you make on the sale of your home. This is typically the result of appreciation and any improvements you have made to increase your home’s value.
The long term capital gains tax rate is determined by your income level. The rates are 0% for those making under $39,000, 15% for those earning less than $435,000, and 20% for those with a higher income. For joint filers the income levels are slightly higher.
However, the federal capital gains tax also comes with an exclusion for the first $250,000 in capital gains earned, if you’ve lived in the home for two of the last five years. Most sellers avoid paying capital gains taxes because of this exclusion. Sellers in high value areas, such as New York City, may not be so lucky.
It is also a wise idea to work with a local realtor, or a tax advisor, when selling your home. New York treats capital gains as ordinary income. This could potentially lead to your tax bill being substantially higher when you sell.
How Much Are Real Estate Transfer Taxes in New York (and Who Pays Them)?
The state of New York charges a transfer tax on all property sales over $5,000. The rate is calculated as $2 in taxes owed for every $500 in real estate value, essentially a .4% rate. At the statewide median value of $300,000 this would come to $1,200 owed.
Transfer taxes can also be imposed by local jurisdictions. New York City has one of the most progressive transfer taxes in the country and charges a 1% fee on any real estate transaction over $25,000 in addition to the state fee. New York City goes further asses transfer taxes on homes valued over $500,000, a 1.4% rate, and additional 1% on homes valued over $1 million.
In New York the tax is typically paid by the seller, but should a seller be exempt, or payment otherwise be negotiated, the buyer would be responsible. The additional tax rates, such as the mansion tax in New York City, are usually paid by the buyer.
Transfer taxes are also an issue debated by government agencies every year, and in New York reform has recently been discussed. Because of this, and the differences from city to city across the state, you should check in with your expert, local real estate agent to plan for any taxes you may be required to pay.
How to Calculate Property Taxes in New York
Property taxes in New York as assessed every year based upon the market value of your home. However, the tax rate can be different every single year. This is because the rate is determined by the local jurisdictions tax levy, or the difference between their budget and all other collected revenues.
However, tax increases can only go up by 2% a year or by inflation, whichever is lower, and in reality assessments rarely happen every year. Many jurisdictions instead have a residential assessment ratio (RAR), which helps property owners determine if their assessment is above true market value.
With all these different tax rates, and separate rates for each jurisdiction, including counties, schools, and special districts, rates vary quite drastically across the state. The effective rates is highest in Orleans County, which reaches 3.46% of value. Hamilton County on the other hand only has a 1.13% property tax rate.
It should also be noted, surprisingly, that New York City has a separate property tax rate that is the lowest in the state. New York City divides properties by classes, with class one being mostly single family homes. These are taxed at an average effective rate of .85% in New York City.
Tax Breaks for New York Home Buyers & Sellers
Those who purchase a home in New York can look forward to several exemptions. Property taxes have a number of exemptions and credits that can help you save on their notoriously high tax rate.
The STAR credit provides a credit or exemption on school taxes to those with qualifying incomes. Other credits are provided for veterans, seniors, those with disabilities, and certain agriculture properties.
First time home buyers also have access to several tax savings programs. Federal programs also provide for significant savings with the mortgage interest deduction, property tax deductions, and many closing costs can also be deducted.
Sellers, of course, benefit from the previously mentioned capital gains exclusion. However, they also can deduct many of the costs associated with selling their home. Certain improvements, property taxes, and the cost of moving are all common deductions or savings sellers qualify for.
Keep in mind many of these deductions can vary state to state based on tax law. Federal and state deductions can also change with the political environment. Recent federal tax law capped property tax deductions at $10,000 and in New York reforms to property taxes have been a recent hot topic. All of these can have a financial impact on your transaction.
To keep apprised of all these local tax impacts, the latest market reports, and help finding your New York dream home, reach out to a Clever Partner Agent. Clever partners with expert, local real estate agents from all major brands and brokerages (Keller Williams, Century 21, etc.) who are willing to help you sell your home with ease and for top dollar.