Thinking of buying property in New York City? Unless you’re paying cash, you need to factor in the mortgage recording tax. According to the New York Department of Taxation and Finance, the state imposes a tax “on the privilege” of recording a mortgage.
What that means is that you have to figure the cost of this recording tax into the cost of the property because, depending on the size of the mortgage, it could be a hefty fee.
The rate is broken down into the state and local portion. Taxes, generally paid by the buyer/borrower, are due when the mortgage is recorded.
On residential property worth $500,000 or less, the tax is 2.05%. On property of $500,001 and above, the rate rises to 2.175%. In each case, the mortgage lender pays 0.25% of the tax while the borrower pays the rest. If the property is a 1 or 2 family dwelling, there’s a $30 discount for the borrower.
What does the tax look like in real numbers? Let’s say you purchased a beautiful single family home for the bargain price of $650,000 in New York City. Your mortgage recording tax comes out to $14,137.50. You also get that generous $30 discount since the home is single family and you may qualify for other discounts. A more modest $250,000 home (if you can find one at that price) would cost $5,537.50 minus your $30 discount.
The New York City Department of Finance website has a mortgage tax calculator to help you figure out the tax.
Two Ways to Avoid the 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.