A contract of the sale of real property may be assigned. However, any consideration received for the assignment of the contract may be taxed by New York State but not New York City.
Let’s say that the Owner of a house in New York City enters into a contract of sale with the Contract Buyer for $750,000.00. The Contract Buyer sells his right to buy the house to the Final Buyer for $250,000.00. The Final Buyer will pay $1 million for the house: $750,000.00 ends up in the Owner’s pockets while $250,000.00 ends up in the Contract Buyer’s pockets. What taxes are due and who pays?
This is tricky. New York State assesses a real estate transfer tax (RETT) on the assignment of a contract of sale for real property. See New York Tax Law Sec. 1401(f):
“Interest in the real property” includes title in fee, a leasehold interest, a beneficial interest, an encumbrance, development rights, air space and air rights, or any other interest with the right to use or occupancy of real property or the right to receive rents, profits or other income derived from real property. It shall also include an option or contract to purchase real property. It shall not include a right of first refusal to purchase real property.
However, New York City does not assess a real property transfer tax (NYC-RPTT) on the sale of an assignment. NYC Administrative Code Sec. 11-2102 does not mention a tax on the assignment of a contract of sale. Practically, look at the forms. The NYS RETT form (TP-584) specifically has a check box for contract assignment. The NYC RPTT form does not.
In this case, the Seller files a NYS-RETT and NYC-RPTT for the $750,000.00 he receives. The Contract Buyer files a NYS-RETT for the $250,000.00 he receives.
Note that the above is not legal or tax advice. If you have any questions, feel free to call us.