The Complete Guide to the NYC Mortgage Recording Tax
You’re getting ready to buy your first property in New York City. It’s exciting. It’s nerve-wracking. It’s expensive. Nevertheless, you feel you have a good idea of what costs to expect on closing day: purchase price – check, legal fees – check, title costs – wait, why is this title bill so high?! Chances are, the mortgage recording tax is the most expensive item on your title bill. So, what is it?
What Is Mortgage Recording Tax in NYC?
Mortgage recording tax is a tax imposed by New York City on the privilege of recording a mortgage on real property located within the City. This tax is generally paid by the buyer and is due when the mortgage is recorded.
New York State imposes a tax on the privilege of recording a mortgage on real property located within the state. The mortgage recording tax in NYC is a percentage of the new mortgage debt amount and applies to new mortgages for acquisitions. In addition, New York City, Yonkers, and various counties impose local taxes on mortgages that are recorded in those jurisdictions.
The mortgage recording tax in NYC only applies to mortgage debt on real property, meaning condos, townhouses, multi-family properties etc.
Things can get confusing for New York City homeowners who wish to open a home equity line of credit (HELOC). While the recording tax is based on the loan amount, some homeowners aren’t sure what that means: Is it the amount of money funded at closing, or the total amount of the credit line? Unfortunately, the recording tax is based on the total amount of the credit line, whether all of it is funded or not.
The NYC mortgage recording tax is one of the largest closing costs NYC home buyers pay when using a mortgage to finance a large portion of their property purchase. You are probably thinking, “Oh great, more taxes.” Not to worry! We’ve outlined below some helpful information to better understand how much you will pay, when the tax is applicable, and how you can offset the mortgage recording tax.
Table of Contents:
Are co-ops excluded from paying the Mortgage Tax?
How much is the Mortgage Recording Tax in NYC?
How can I avoid paying the Mortgage Recording Tax?
Is the New York Mortgage Tax deductible?
How is this different than the NY NYC Transfer Tax?
How much is the NY Transfer Tax?
Co-ops are excluded from paying mortgage tax
If you are buying a co-op in NYC, you are in luck – you will not have to pay a mortgage recording tax. When purchasing in a co-op, you are buying shares in the corporation that owns the co-op. As a result, co-ops are not considered real property, and since the co-op loans are secured by the shares in the corporation they are not subject to the recording tax.
How Much Is the Mortgage Recording Tax in NYC?
The Mortgage Recording Tax in NYC varies depending on the size and classification of the mortgage and is composed of both a New York City tax as well as New York State’s Basic Tax, Special Additional Tax and Additional Tax. The rates are as follows:
For all mortgages with initial loan balances less than $500,000
- 2.05% of the initial mortgage principal (includes a 1% New York City tax).
For mortgages of one to three family houses and individual residential condo units with initial loan balances of $500,000 or more
- 2.175% of the initial mortgage principal (includes a 1.125% New York City tax)
For all other mortgages with initial loan balances of $500,000 or more is
- 2.8% of the initial mortgage principal (includes a 1.75% New York City tax.
Yes, that’s a significant chunk of money coming out of your pocket and is unfortunately paid upfront. For example, if you bought the average condo in Manhattan for $2,000,000 (crazy to think, but that’s the average!), with a 20% down payment, you should expect to pay 2.8% on the $1,600,000 loan amount or roughly $44,800 for the mortgage recording tax alone.
Who Pays the Mortgage Recording Tax in NYC?
The Mortgage Recording Tax is typically paid by the buyer in a New York City real estate transaction. The home-buyer/borrower is, as a general matter, always responsible for paying the basic tax and the additional tax. At the closing, the home-buyer/borrower pays the basic tax and the additional tax by delivering a check to the title company. The title company then submits payment of the mortgage recording tax together with the mortgage when the mortgage is submitted to the county clerk for recording. It is important to remember that this tax is only applicable for purchases of real property such as condos vs co-ops.
Unlike other closing costs in NYC such as transfer taxes in a sponsor unit sale or the Mansion Tax which may be negotiable, it is very uncommon to see the Mortgage Recording Tax being paid by anyone but the buyer.
How Is the Mortgage Recording Tax Filed?
The New York City Register Office collects this tax for Manhattan, Brooklyn, Queens and the Bronx. The Richmond County Clerk collects this tax for Staten Island.
All property documents for Manhattan, Brooklyn, Queens and the Bronx are recorded online using ACRIS, which is NYC’s online database of public property records. Documents for Staten Island must be recorded in person at the Richmond County Clerk’s Office.
The legal authority for collecting the NYC Mortgage Recording Tax comes from Title 11, Chapter 26, Administrative Code and Tax rates Section 253-a.
MT-15, otherwise known as the Mortgage Recording Tax Return, is a New York State Department of Finance form that needs to be properly filled out and filed for your mortgage to be recorded.
How to avoid paying the Mortgage Recording Tax
If you’re refinancing the property, there’s a chance you may not pay new recording taxes, but your lender will have fees of its own to help you qualify for the exemption (especially if you’re refinancing with a different lender than the holder of the original mortgage). Discuss the option with your lender to see if it’s worth the cost.
You can also look into avoiding mortgage recording tax if you assume the mortgage of the previous owner, a procedure called a mortgage assignment or a “Consolidation, Extension or Modification Agreement.” The paperwork involved in this can have significant costs of its own and may not be cheaper than paying the mortgage recording tax, but it’s worth investigating if applicable to your purchase.
Note that the mortgage recording tax can be added to the cost basis of your property when you sell it, so keep track of how much you paid.
CEMA Loan
A great way to minimize the impact of the Mortgage Recording Tax is to negotiate a purchase CEMA loan with the seller. For a purchase CEMA loan to happen, the seller needs to have a reasonable amount of mortgage principal remaining on their home. If so, the seller’s bank can assign the seller’s remaining loan balance to the buyer’s bank. As a result, the buyer would only need to pay the Mortgage Recording Tax in NYC on any new loan amount on top of the seller’s mortgage.
Of course, for this to happen the seller needs to provide consent. This price of this consent may be heavy, as a savvy seller may ask you to split the cost savings with them. However, you can make sure the seller knows that they will also be saving via reduced New York State transfer taxes which are normally 0.4% of the sale price.
Inform the seller of the benefit of Implementing CEMA. According to the New York State Law on “Continuing Lien Exclusion” (implemented on Aug. 28, 1997), “the outstanding amount of a lien existing prior to a transfer may be excluded from consideration (legal value in connection with contracts promised to another) when the property being transferred is a one-to-three family house, a residential cooperative or condominium unit or as an economic interest in such property.” In other words, the seller benefits by saving a portion of their New York State transfer tax as well.
Purchase CEMA loans can also be utilized for a refinancing of an existing home. In fact, lenders will be more willing to do a purchase CEMA if they will be holding onto the mortgage. Essentially, they are usually more than happy to do a purchase CEMA and assign the new loan to themselves.
Still Purchase CEMA transactions are highly complex and require the negotiating skills and experience of a real estate attorney familiar with such transactions, as well as a buyer’s broker who has done these types of deals before.
Refinancing
Under state and New York City law, a mortgage recording tax must be paid when a new mortgage is created and recorded on a property in many cases, however, a homeowner may be able to avoid the mortgage recording tax on a refinance if the original lender and the new lender cooperate.
Instead of satisfying the old mortgage from the proceeds of the new mortgage lender, the owner may be able to arrange for the original lender to assign — or transfer — the remaining balance on the old mortgage to the new lender. The new lender and the owner would then sign an agreement to recast the assigned mortgage to reflect the new mortgage terms. Because the old mortgage is not being satisfied, but simply assigned, no new mortgage debt is created. Therefore, no recording tax would apply.
This process is more paper intensive than a simple mortgage satisfaction, so there is a greater legal cost involved. But the savings can be significant.
Is The New York Mortgage tax deductible?
The mortgage recording tax is not deductible in the way that real estate property taxes on a personal residence are deductible, as an itemized deduction on the homeowner’s income tax return. Nor are they deductible as a business expense on income-producing property as property taxes would be in such a context.
However, payment of the mortgage recording tax does give rise to the possibility of a deferred reduction in taxes that may be due in that the amount of tax paid as an expense of acquisition, thereby increasing the cost and reducing the net capital gain realized by the taxpayer when the property is sold. (Such gain, may or may not be subject to taxation. Under the Federal budget package now before Congress, for example, the first $250,000 in gain on the sale of a principal residence by an individual taxpayer would be exempt; for married taxpayers filing jointly, the exemption would be $500,000.)
How is this different than the NYS/NYC transfer tax?
Keeping track of all the different taxes can be difficult and seemingly never ending! The mortgage recording tax is its own tax. You can read all about other taxes involved in real estate transactions in our other posts Mansion Tax NYC: Everything You Need To Know and A Comprehensive Guide to the NYS and NYC Transfer Tax.
How much is the NY transfer tax?
Whenever there is an exchange of real estate, the state, county or municipality in which the real estate is located charges a transfer tax on the privilege of transferring real property within the jurisdiction. What this basically means is that in exchange for making the process legal and official, a fee is paid to those providing the jurisdiction. Another example of this type of tax is the fee for registering a motor vehicle.
In New York State, the transfer tax is calculated at a rate of two dollars for every $500. For instance, the real estate transfer tax would come to $1,200 for a $300,000 home. New York State also has a mansion tax. Properties with sales prices of $1 million or more are subject to an additional real estate transfer tax of 1%. That means a home that sells for $1 million is has a transfer tax of 1.4%.
In New York, the seller of the property is typically the individual responsible for paying the real estate transfer tax. However, if the seller doesn’t pay or is exempt from the tax, the buyer must pay. The buyer is usually responsible for the 1% additional real estate transfer tax on properties worth $1 million or more. That said, if the buyer is exempt, the seller must pay. Whatever the situation – whether the buyer or seller pays – New York requires the full tax amount be paid.
Some states have a set of transfer tax laws that may include exemptions based on an individual’s buying status or income level. In Maryland for example, certain first-time buyers are exempt from a percentage of the total, or a portion of the property’s sale price could be excluded from taxation. While in Washington D.C., the 2.2% is split between the seller and the buyer.