Flip tax NYC: what a co-op flip tax is and who pays it

What is a flip tax?

A flip tax is a transfer fee charged by the cooperative corporation on a sale of shares. It is paid to the building, not to the city or state, and it is not a tax in the legal sense. The name comes from the way people have used it: a fee when an owner "flips" an apartment to a new owner.

The legal footing is the state's Business Corporation Law. Section 501(c) allows fees payable on a sale or transfer of shares to vary without making the shares unequal. The statute does not set an amount. The building's offering plan, proprietary lease, by-laws or amendments do, and a flip tax in a co-op is one of several things those documents decide for each building.

Because the co-op structure is what makes a flip tax possible, it helps to know the basics. A co-op buyer purchases shares in a corporation, and the shares carry a long-term proprietary lease on a specific apartment, according to the Attorney General. Read more in our co-op and condo buying guide.

Where the flip tax comes from: BCL 501(c) and your documents

Two layers answer almost every flip tax question. The first is state law, which permits the fee. The second is your building, which defines it. A reader who has only the first layer knows that a flip tax can exist but not whether, how much or who pays.

The documents that can contain the details include:

• The offering plan, which sets out terms when the building was converted or sold
• The proprietary lease, which most co-op owners keep with their share certificate
• The by-laws and any amendments
• Board resolutions or a written policy the managing agent can show you

That is why no honest guide can give you a typical percentage. Figures you may see online come from firm blogs and brokerage pages, and a published average does not tell you what your own lease says. Ask for yours.

How a flip tax in a co-op is usually described

The formula varies, and the documents state it. Rather than quoting numbers, here is what to look for when you read a formula. Treat these as questions, not as facts about your building:

• What it is measured against. Some formulas use the sale price, some use profit or the amount above what the seller paid, and some use a per-share figure. The wording in the document controls.
• Adjustments. A formula may allow reductions or exclusions in particular situations. Look for any wording about capital improvements, family transfers, estates or long-term owners.
• Timing. Find out when it is due, usually at closing. Ask whether the building wants it separately or deducted from proceeds.
• Who pays. The document may name the seller, the buyer or both. The sale contract may say something different, so read both.
• Special cases. A sale to a family member, a transfer through an estate or a change in ownership between co-owners may be treated differently or may not be covered. Ask the managing agent.

If the wording is unclear, send a short written question to the managing agent and keep the reply. If the answer differs from your lease, tell your attorney.

Who pays the flip tax?

The common question, who pays the flip tax, has no statewide answer. In many sales the seller pays because the building's documents say so, and sellers should plan for that unless their lease clearly says otherwise. But the building's documents can place the fee on the buyer or divide it, and the contract of sale can allocate it too.

For your net sheet, treat the flip tax as a seller cost until your attorney tells you otherwise. If you are the buyer, ask early, because a buyer's budget for cash at closing must include any fee the documents or contract put on the buyer. For a seller's full list of costs, see how to estimate your net proceeds.

One practical point: ask for the figure in writing from the managing agent, dated and tied to your apartment. A casual answer by phone is not enough to build a budget on, and it will not help if a number changes between the listing and the closing.

Flip tax vs transfer tax

People mix them up, so here is the comparison. The flip tax goes to the building and comes from its documents. Transfer taxes go to the government and come from statutes. A New York City co-op sale can carry both kinds.

Sources: BCL 501; Tax Law 1402; NYC Finance, RPTT.

The state and city rates are explained, with worked examples, in our NYC transfer tax and mansion tax guide. In flip tax vs transfer tax terms, the short version is this: one is a building's rule and the other is the law. You may owe both, and the closing statement should list them separately.

What to look for when you read the lease and by-laws

Most owners have never read the flip tax clause. It is usually short, and it rewards ten minutes of attention. Find the section that discusses transfers or sales of shares and read it start to finish, then check whether any amendment changed it. Then look for these items:

• The name of the fee, which may not say "flip tax" and may appear as a transfer fee or a charge on assignment of the lease
• The base the fee uses and any stated exceptions
• Whether the building may change the amount by board action or only by a vote of shareholders
• Any language on when the fee must be paid and what happens if it is not
• Any separate fees for the managing agent, the building's lawyer or the transfer itself

If something is ambiguous, do not interpret it yourself. Quote the clause to your attorney, who can say how a New York court would likely read it and how the managing agent has applied it in other sales.

If you are the buyer

A buyer has a stake in the flip tax even when the seller pays it. How a building uses what it collects is a question for the managing agent and the building's financial statements, which a buyer's attorney should read.

Ask the seller's side for the proprietary lease, by-laws and recent financial statements before you spend money on an appraisal or application. If the contract assigns any part of the flip tax to you, your attorney should raise it before you sign, since it affects your cash to close.

How to plan for the flip tax when you sell

You can do four things before you list, and they take less than an hour.

• Read the flip tax provision in your proprietary lease and any amendments
• Ask the managing agent for the current formula and an estimate for your apartment in writing
• Ask whether any other seller fees apply, such as processing, a move-out deposit or a bank payoff fee
• Give your attorney the answers before the contract is drafted

Then add the number to your net sheet. The net proceeds calculator handles the state and city transfer taxes, so you can enter your flip tax and fees yourself. It cannot know your building's number.

If the amount is large relative to your plans, talk to your CPA and attorney about timing and treatment. Do not assume the fee is deductible. Its treatment is a tax question, and your CPA is the one to answer it for your return.

Why the flip tax matters when you are also buying

Downsizers usually sell and buy. If your next home is a co-op, you will meet a flip tax from the other side, and the next sale's flip tax will matter someday. When you read a building's documents, check the same provision. A building with a fee that falls heavily on sellers can still be a good fit, but the fee belongs in your long-term cost picture.

If you are choosing between a co-op, a condo and other housing types, see co-op, condo, townhouse or house. For where to look, start with where to downsize, and check 55-plus communities if age-restricted housing is on your list.

Where the flip tax fits in the sale

The flip tax is one line in a longer process: documents, board package, contract, approval and closing. Our guide to selling a co-op in NYC walks through the full sequence, and Costs and Money puts the other costs in context. The resources page lists official contacts. When you want to talk through a sale, get matched. Introductions go to agents on the operating team at eXp Realty, so this is not a search of the whole market.