New York State Makes Estate Tax Changes, Increases Real Estate Transfer Tax
The Executive Budget that was recently passed by the New York State Legislature extends the provision that donations made within three years of an individual’s death are added to the individual’s taxable estate. In addition, the legislation provides that the taxable estate of a surviving spouse includes the assets of a matrimonial trust for which an Eligible Termination Interest Property (QTIP) election has been made for New York purposes on the death of the first spouse. , although no federal election under QTIP has been made.
The legislation also includes a significant increase in taxes imposed on the sales of New York City real estate with a consideration of at least $ 2 million. As described below, the tax rate depends on a number of factors, including the type of property transferred and the amount of consideration.
New York Estate Tax Changes
Since 2014, New York law provides that the taxable patrimony of a deceased person is increased by the amount of taxable donations made during the three-year period ending on the date of death if the deceased person made the donations then that she was a resident of New York (other than donations of tangible or real movable property located outside New York or donations made before April 1, 2014). For estates of individuals who are not resident in New York at the time of death, the taxable estate includes such gifts only if they consist of tangible or real personal property located in New York or intangible personal property employed in an estate. business carried on in New York (and only if the donation was made while you resided in New York).
This “addition of gifts” provision, by its terms, did not apply to estates of deceased persons who died on or after January 1, 2019. The new legislation expands the provision to apply to estates of deceased persons before January 1. 2026. There is an exception for donations made between January 1, 2019 and January 15, 2019, which are not added to the taxable estate. One strategy to avoid New York estate tax has been to make donations to reduce the amount of the estate to less than the New York exemption amount (currently $ 5,740,000). Under the recently expanded provision of the tax law, this strategy will not work for New York residents if death occurs within three years of the donation.
In addition, the legislation increases the taxable estate of a surviving spouse by the value of the matrimonial trust property for which a QTIP election has been made for New York estate tax purposes on the death of the first spouse, that a Federal choice QTIP has been made or not. (A QPIP election is an election made on an estate return that allows assets transferred to a surviving spouse trust to qualify for the marriage deduction. The property of the trust is generally subject to the tax. estate tax on the death of the surviving spouse, effectively resulting in a deferral of estate tax on the trust property.)
This provision was adopted by the legislature to reverse the result of the Seiden Case. In Seiden, the estate of the first spouse was not subject to federal inheritance tax because he died in 2010, when federal inheritance tax was not in effect. The estate filed an estate tax return in New York and made a QTIP election for a surviving spouse trust, thereby qualifying the trust for the New York marital deduction. When the surviving spouse subsequently died, the surrogate court ruled that the QTIP trust property was not subject to New York estate tax because under New York State law York, property that is not included in a deceased’s estate for federal estate tax purposes was not subject to the new York Estate Tax and, in fact, the trust property were not included in the estate of the surviving spouse for federal estate tax purposes because no federal election under the QPIP had been made on the death of the first spouse.
Due to legislation, if a QTIP election is made for New York estate tax purposes on the death of the first spouse and no federal QTIP election is made because the first spouse’s estate is not held to file a federal estate tax return (for example, if the estate is below the federal reporting threshold), the trust property will be subject to New York estate tax on the death of the surviving spouse. This provision applies to estates of persons who died on or after April 1, 2019.
Increase in taxes on real estate transfers
The legislation increases New York State tax on transfers of real estate to New York in two ways.
First, the legislation increases the base tax on certain transfers of real estate, which, prior to the legislation, were generally subject to New York State transfer tax at the rate of 0.4% (in addition to the tax New York City transfer rate). Effective July 1, 2019, for transfers of residential real estate in New York City for which the consideration is at least $ 3 million, New York State tax is increased to 0.65%. The same tax rate increase applies to transfers of non-residential real estate to New York City where the consideration is at least $ 2 million. Residential real estate includes single, two-family or three-family homes; condominium units; and cooperative apartments. The basic property transfer tax is the responsibility of the seller.
In addition to the increase in the basic tax on real estate transfers, the legislation increases the “residence tax” on certain sales of residential real estate. Before the legislation, the mansion tax was a 1% tax on disposals of residential real estate with a consideration of at least $ 1 million. The legislation increases the mansion’s tax rate for sales of residential real estate in New York where the consideration is at least $ 2 million. The tax rate increases with the amount of the consideration, ranging from 1.25% to 3.9%. Housing tax is payable by the buyer (but if the buyer does not pay on time or is exempt from paying the tax, the seller becomes responsible for it).
The following table illustrates the tax rate imposed by the State of New York under the legislation for sales of residential real estate in New York at various levels of consideration.
The New York State tax increase is separate and is in addition to the New York City tax imposed on these transfers. The New York City transfer tax has not been increased. For transfers of residential real estate with consideration greater than $ 500,000, NYC transfer tax is 1.425%, and where consideration is $ 500,000 or less, NYC transfer tax is 1% . For transfers of non-residential real estate with consideration greater than $ 500,000, the NYC transfer tax is 2.625%, and when the consideration is $ 500,000 or less, the NYC transfer tax is 1.425. %.
The new tariffs come into effect on July 1, 2019. However, they do not apply to transfers made under a binding written contract entered into no later than April 1, 2019, provided that the contract execution date is confirmed by independent evidence, such as contract registration, payment of a deposit, or other facts and circumstances as determined by the State of New York.