Flip Tax NYC: The Buyer's Guide for 2025

As if there weren’t enough closing costs to worry about for buyers and sellers in NYC, here’s another "tax" to add to the list; the good news? It’s not actually a tax.

Some seasoned apartment buyers may have already come across the term "flip tax" while shopping for a dream condo or co-op apartment. But those who haven’t and are new to the unique landscape of NYC’s real estate market need not fret; we’ll break down everything you need to know about this peculiar "tax."

It is especially important for co-op buyers to understand flip taxes, as these can significantly impact the overall cost of purchasing an apartment in New York City.

The flip tax originated in the 1970s as rental buildings were being converted into co-ops. The idea behind this was to help create budgets to maintain said buildings. The practice has evolved a bit since then, but the essence remains the same.

Below, the team from Prevu will take you through all the important details and questions about the flip tax in NYC, from what it is and what it’s for to how to know when you have to pay it.

Flip taxes emerged in the early 1970s as a strategy for transformed co-op buildings to retain capital within their financial reserves via the collection of a transfer fee when a unit changes owners.

This mechanism served as a financial safeguard, ensuring that a portion of the profits from the sale of units contributes back to the collective well-being of the building’s community. While the term "tax" suggests a mandatory government-imposed charge, flip taxes are instead governed by the individual policies set forth by each co-op or condo’s board, making them a unique aspect of New York’s housing market.

The structure and rate of flip taxes can vary widely, often calculated as a percentage of the sale price, a fixed fee, or a formula based on shares for co-op units. Sellers need to factor in the cost of the flip tax, which is a fee paid by the seller to the building, when calculating potential net proceeds from a sale, while buyers should be aware of how such fees impact the overall financial health of the building into which they are buying.

How flip taxes works

Flip taxes are typically calculated as a percentage of the sale price, usually ranging from 1 to 3.5 percent. The exact fee can vary depending on the building and neighborhood, with some buildings charging up to 10 percent of the sales price. For instance, HDFC co-ops, which are designed to provide affordable housing, may impose higher flip taxes, sometimes up to 10 percent of the sale price.

Additionally, some buildings use a sliding scale to calculate the fee, where the percentage decreases the longer the owner has lived in the building. This approach incentivizes long-term residency and can reduce the financial burden on long-term owners.

The rules that govern who pays a flip tax depend on each individual building. Traditionally, the seller is responsible for paying the "tax," but the final responsibility of the fee can fall on either the buyer or seller. Who exactly pays will depend on the building, but it’s also important to remember that responsibility for the fee can sometimes be negotiated between both parties as long as the fee gets paid at closing.

The co-op board plays a crucial role in determining who pays the flip tax. They can only impose such taxes if allowed in the original offering plan or through a proper amendment, and tenant-shareholder approval is necessary for any amendments.

For instance, in a buyer’s market, a seller might agree to cover the flip tax to expedite the sale, or conversely, in a seller’s market, a buyer might take on this cost to make their offer more appealing to the owner.

Understanding who pays the flip tax is crucial for financial planning, whether you’re on the buying or selling side of a transaction. In the case that a seller is responsible for the fee, it’s important to have an accurate estimate of the flip tax when calculating their net proceeds. In the case of buyers paying the "tax," it’s essential to consider the financial stability and policies of the building into which they are buying.

A building’s flip tax in New York City doesn’t have a one-size-fits-all answer, given its variability across different co-op and condo communities. That said, the average flip tax in the city is approximately 2%.

This fee is typically calculated in one of four ways: a percentage of the gross sale price, a fixed dollar amount per share (in the case of co-ops), a flat fee, or a percentage of capital gain.

For example, a co-op building might impose a 2% flip tax on the gross sale price, which means if an apartment sells for $1,000,000, the flip tax would be $20,000. Another building might charge $5 per share; thus, for an apartment with 1,000 shares, the flip tax would amount to $5,000. Some buildings might opt for a flat fee, say $10,000, regardless of the sale price or number of shares.

Lastly, there is the case of the flip tax being a percentage of capital gain. If the apartment sells for $1,200,000 and the owner originally bought it for $1,000,000, the capital gain is approximately $200,000. For this simple example, the building would multiple a fixed percentage to the $200,000 capital gain amount to calculate the flip tax.

Understanding the specific flip tax rate applicable to a property involves a deep dive into the co-op or condo’s governing documents or consulting with the building’s management. This information is crucial for sellers, as the flip tax directly impacts the net proceeds from their sale.

Additionally, co-op's owners can benefit from specific tax abatements that significantly reduce property taxes. These tax benefits are managed by co-op boards and can provide substantial savings for shareholders.

Flip tax policies in New York City depend largely on the building and are most commonly encountered when selling or buying a co-op.

Transfer fees, often linked with flip taxes, are used to raise funds for building reserves in co-ops and condos. These fees have become increasingly common as a response to rising building expenses, allowing boards to generate revenue without directly increasing common charges.

Some buildings might impose a relatively low flip tax rate, aimed merely at covering administrative costs associated with the sale of a unit, while others set higher rates designed to significantly bolster the building’s reserve fund or finance major renovations.

Moreover, the introduction or adjustment of flip tax policies can sometimes be a point of contention or negotiation within a building’s community.

Changes to these policies typically require a vote by the shareholders or unit owners, providing an opportunity for residents to voice their opinions and influence the financial direction of their community. Prospective buyers should pay close attention to the flip tax policies of any building they’re considering, as these can have long-term implications for the property’s value and the owner’s financial obligations upon sale.