N.Y. Tax Law § 1402 — Imposition of tax

§ 1402. Imposition of tax. (a) A tax is hereby imposed on each\nconveyance of real property or interest therein when the consideration\nexceeds five hundred dollars, at the rate of two dollars for each five\nhundred dollars or fractional part thereof; provided, however, that with\nrespect to (A) a conveyance of a one, two or three-family house and an\nindividual residential condominium unit, or interests therein; and (B)\nconveyances where the consideration is less than five hundred thousand\ndollars, the consideration for the interest conveyed shall exclude the\nvalue of any lien or encumbrance remaining thereon at the time of\nconveyance. The rate of this tax shall be: (1) two dollars for each five\nhundred dollars or fractional part thereof on all conveyances of real\nproperty or interest therein; plus (2) an additional one dollar and\ntwenty-five cents for each five hundred dollars or fractional part\nthereof of consideration on each conveyance of real property or interest\ntherein within any city in this state having a population of one million\nor more (i) when the consideration for the entire conveyance of\nresidential real property is three million dollars or more, and (ii)\nwhen the consideration for the entire conveyance of any other property\nis two million dollars or more. For purposes of this section,\nresidential real property shall include any premises that is or may be\nused in whole or in part as a personal residence, and shall include a\none, two, or three-family house, an individual condominium unit, or a\ncooperative apartment unit.\n (b) (1) Notwithstanding the provisions of subdivision (a) of this\nsection, in the case of any real estate investment trust transfer\noccurring on or after the effective date of this subdivision, the tax\nimposed under subdivision (a) of this section shall be imposed at the\nrate of one dollar for each five hundred dollars or fractional part\nthereof of consideration.\n (2) (A) For purposes of this subdivision, the term "real estate\ninvestment trust" (hereinafter referred to as a "REIT") shall have the\nsame meaning as in section 856 of the internal revenue code.\n (B) For purposes of this subdivision, the phrase "real estate\ninvestment trust transfer" shall mean any conveyance of real property or\nan interest therein to a REIT, or to a partnership or corporation in\nwhich a REIT owns a controlling interest immediately following the\nconveyance, which conveyance (I) occurs in connection with the initial\nformation of the REIT, provided that the conditions set forth in clauses\n(i) and (ii) of this subparagraph are satisfied, or (II) in the case of\nany real estate investment trust transfer occurring on or after July\nthirteenth, nineteen hundred ninety-six and before September first, two\nthousand twenty-six, is described in the last sentence of this\nsubparagraph.\n (i) The value of the ownership interests in the REIT, or in a\npartnership or corporation in which the REIT owns a controlling\ninterest, received by the grantor as consideration for such conveyance\nmust be equal to an amount not less than forty percent of the value of\nthe equity interest in the real property or interest therein conveyed by\nthe grantor to the grantee and such ownership interests must be retained\nby the grantor or owners of the grantor for a period of not less than\ntwo years following the date of conveyance; provided, however, that in\nthe case of the death of the grantor or an owner of the grantor within\nsuch two year period, this two year retention requirement shall be\ndeemed to be satisfied notwithstanding any conveyance of such ownership\ninterests held by such individual as a result of such death. The value\nof the equity interest in such real property or interest therein shall\nbe computed by subtracting from the consideration for the conveyance\n(determined in accordance with paragraph three of this subdivision) the\nunpaid balance of any loans secured by mortgages or other encumbrances\nwhich are liens on the real property or interest therein immediately\nbefore the conveyance. For purposes of this computation, in the case of\na conveyance of real property or interest therein other than a transfer\nor an acquisition of a controlling interest, the amount of the unpaid\nbalance of any loans secured by mortgages or other encumbrances to be\nsubtracted from consideration is determined by multiplying the total\nunpaid balance of any loans secured by mortgages or other encumbrances\non the real property or interest therein by the percentage of the\nownership interest in the real property or interest therein being\nconveyed to the grantee. In the case of a conveyance which is a transfer\nor an acquisition of a controlling interest, such amount to be\nsubtracted is equal to the sum of the following amounts: (I) a\nreasonable apportionment to the interests in real property owned by the\nentity of the amount of any loans secured by encumbrances on the\nownership interests in the entity which are being transferred or\nacquired and (II) the amount of any loans secured by mortgages or other\nencumbrances on the real property of the entity multiplied by the\npercentage interest in the entity which is being transferred or\nacquired. Provided, however that, for purposes of this computation, any\nmortgages or other encumbrances on the real property or interest therein\nwhich are created in contemplation of the initial formation of the REIT\nor in contemplation of the conveyance of such real property or interest\ntherein to the REIT or to a partnership or corporation in which the REIT\nowns a controlling interest immediately following the conveyance shall\nnot be considered.\n (ii) Seventy-five percent or more of the cash proceeds received by\nsuch REIT from the sale of ownership interests in such REIT upon its\ninitial formation must be used: (I) to make payments on loans secured by\nany interest in real property (including an ownership interest in an\nentity owning real property) which is owned directly or indirectly by\nsuch REIT; (II) to pay for capital improvements to real property or any\ninterest therein owned directly or indirectly by such REIT; (III) to pay\ncosts, fees, and expenses (including brokerage fees and commissions,\nprofessional fees and payments to or on behalf of a tenant as an\ninducement to enter into a lease or sublease) incurred in connection\nwith the creation of a leasehold or sublease pertaining to real property\nor any interest therein owned directly or indirectly by such REIT; (IV)\nto acquire any interest in real property (including an ownership\ninterest in any entity owning real property), apart from any acquisition\nto which a reduced rate of tax is applicable pursuant to this\nsubdivision (without regard to this clause); or (V) for reserves\nestablished for any of the purposes described in subclause (I), (II) or\n(III) of this clause. For purposes of this clause, the term real\nproperty shall include real property wherever located.\n If a conveyance otherwise described in this subparagraph occurs other\nthan in connection with the initial formation of a REIT, the condition\nset forth in clause (ii) of this subparagraph shall be disregarded and\nsuch conveyance shall constitute a "real estate investment trust\ntransfer" if the condition set forth in clause (i) of this subparagraph\nwould be satisfied if "fifty percent" were substituted for "forty\npercent" therein.\n (3) For purposes of measuring consideration under this subdivision,\nthe fair market value of the real property or interest therein being\nconveyed shall be calculated by dividing (i) the net cash flow from\noperations with respect to such real property for the twelve-month\nperiod ending on the last day of the second month preceding the date of\nthe conveyance by (ii) the sum of (A) the federal long-term rate\ncompounded semi-annually that is determined by the United States\nsecretary of the treasury under section 1274(d) of the internal revenue\ncode in effect thirty days prior to the date of the conveyance and (B)\ntwo percentage points. Provided however, if the commissioner of taxation\nand finance determines that either the amount in clause (i) of this\nparagraph or clause (ii) of this paragraph does not result in an\naccurate representation of the fair market value of such real property\nor interest therein as such value is to be determined under this\nparagraph, the commissioner may adjust either of such amounts. In lieu\nof utilizing the method prescribed in this paragraph for determining\nfair market value, the taxpayer may utilize any method for determining\nfair market value that the commissioner of taxation and finance has\nprescribed in rules or regulations or otherwise.\n