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Gross-Up of Transfer Tax on Residential Property Where Purchaser Pays NYS Transfer Tax (Tax Law 1404)

Effective July 1, 2021, the amendment to Tax Law 1404 will go into effect. One of the provisions of the amended law states:

In the case of a conveyance of residential real property as defined in subdivision (a) of section fourteen hundred two-a of this article, if the tax imposed by this article is paid by the grantee pursuant to a contract between the grantor and the grantee, the amount of such tax shall be excluded from the calculation of consideration subject to tax under this article.

Under the law prior to July 1, 2021, where the grantee paid the NYS transfer tax, the amount of the transfer tax paid by the grantee would be included in the taxable consideration, and the NYS transfer tax would be “grossed up” accordingly. Under the revised law, if the conveyance is of residential real property and the grantee pays the NYS transfer tax, the NYS transfer tax is no longer included as a part of the taxable consideration, and the ultimate NYS transfer tax to be paid by the grantee is no longer “grossed up.”

The Stewart Rate Calculator will reflect this change starting the evening of July 1, 2021, and be able to calculate the appropriate transfer taxes.

A copy of the new law can be found here.

NOTE: This applies only to the NYS transfer tax. Local transfer taxes may still be subject to the “gross up.”