What Is Mortgage Tax in NY?
Demystify New York's mortgage tax. Understand this crucial cost, how it's determined, and its role in your NY real estate financing decisions.
New York imposes a mortgage tax when a mortgage is recorded. This tax is collected by both New York State and its localities to generate revenue. It is a cost associated with purchasing or refinancing property within the state.
Understanding New York Mortgage Tax
New York imposes a mortgage tax on recording a mortgage with the county clerk’s office. This tax applies to residential and commercial transactions and is calculated based on the loan’s principal amount. While the borrower typically bears this cost, the “Special Additional Mortgage Tax” is legally paid by the lender.
New York’s mortgage tax is distinct from other real estate taxes, such as annual property taxes or real estate transfer taxes. Property taxes are recurring levies based on assessed value, while transfer taxes are paid at the time of sale. The mortgage tax specifically applies to the financing aspect of a real estate transaction, triggered only when a new mortgage or an amendment is officially documented. Rates vary significantly by location, with different rates in New York City compared to other counties.
Calculating the Mortgage Tax
New York mortgage tax is calculated based on the mortgage’s principal amount, not the property’s value. Statewide, the tax includes a basic tax of 0.50% and an additional tax of 0.25%. A special additional mortgage tax of 0.25% is the lender’s responsibility for residential mortgages with six or fewer dwelling units, but can be passed to the borrower in other cases.
Properties in the Metropolitan Commuter Transportation District (MCTD) incur an additional MTA tax of 0.25%. The MCTD includes New York City and the counties of Dutchess, Nassau, Orange, Putnam, Rockland, Suffolk, and Westchester. For one or two-family residential properties, the first $10,000 of the mortgage principal is exempt from this additional tax.
New York City has tiered rates combining state and city components. For residential properties (one-to-three family dwellings or individual condominium units), the rate is 1.75% for mortgages under $500,000 and 1.875% for mortgages of $500,000 or more. Commercial properties in New York City have rates of 2.50% for mortgages under $500,000 and 2.80% for mortgages of $500,000 or more. For residential loans, the borrower’s portion is 1.8% for loans under $500,000 and 1.925% for loans $500,000 or more, with the lender typically contributing 0.25%. For example, a $400,000 residential mortgage in New York City would be taxed at 1.75%. If the same $400,000 mortgage were for a property outside the MCTD, the combined state rate would apply.
Exemptions and Special Considerations
Certain situations and entities may qualify for exemptions or reductions in the New York mortgage tax. When refinancing an existing mortgage, a credit for previously paid mortgage tax on the original principal amount may be available. This is often achieved through a Consolidation, Extension, and Modification Agreement (CEMA), which allows the borrower to pay mortgage tax only on the “new money” or the additional loan amount exceeding the original principal balance. A CEMA can lead to substantial savings, particularly in high-tax areas like New York City, by avoiding the payment of tax on the entire new loan amount.
For purchase money mortgages, the “Special Additional Mortgage Tax” component of 0.25% is generally not paid by the borrower. This contrasts with refinance transactions where the borrower might indirectly bear this cost. Governmental entities, such as the United States or New York State, and certain non-profit organizations may also be exempt from the mortgage recording tax. To qualify, non-profits typically must be organized and operated on a non-profit basis and be exempt from federal income taxation under Section 501(a) of the Internal Revenue Code.
Reverse mortgages that conform to specific provisions of the Real Property Law in New York are generally exempt from mortgage tax. This exemption applies to the loan proceeds received, as reverse mortgages are considered loans rather than taxable income. Additionally, loans for cooperative apartments (co-ops) are typically exempt from mortgage recording tax because co-op shares are considered personal property rather than real property.
Payment and Recording Procedures
The New York mortgage tax is typically collected at the real estate closing. During this process, the title company or closing attorney is usually responsible for calculating, collecting, and remitting the tax to the appropriate county recording office. This payment is a prerequisite for the mortgage to be legally recorded with the county clerk’s office.
Recording the mortgage provides public notice of the lien and legally protects the lender’s interest in the property. Without proper recording and payment of the associated mortgage tax, the mortgage would not be a valid public record. The collected mortgage tax revenue is then distributed to both New York State and the various local governments.