Home Buying in Gramercy Park>Question Details

Kirsten, Home Buyer in 10038

Do co-ops typically impose a flip tax only if you sell the unit within a certain period of time or even if you didn't sell it for 25 years?

Asked by Kirsten, 10038 Mon Jan 25, 2010

I.e., I always thought they were created to discourage people buying a unit, fixing it up and selling it two years later. But now I am reading there are flip taxes that apply without a time limit. How common is this?

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Joseph Runfola’s answer
Flip Tax is a tax imposed by a cooperative (co-op) on the sale of a unit within the building. This fee can be based on a percentage of the gross sale, net sale, gain, or the number of shares held by the shareholder or a fixed number determined by the cooperative board. The flip tax can be paid by the purchaser, seller, or shared by both parties, however, custom usually dictates that the seller pay the flip tax. There are several different types of flip taxes, each with its own merits and problems. The choice you make should be the one best adapted to the needs of your building and its shareholders.
Per Share Amount. This is, of course, the most conventional and simplest type of flip tax, and one found acceptable by the Court in the FeBland case. It treats all shareholders equally by imposing a flip tax of a fixed dollar amount per share. However, this method can excessively benefit sellers who bought years ago and paid far less than the current market rate, because they would be taxed the same amount as those who bought more recently at higher prices.
Flat Fee. A second method is to charge a certain flat dollar amount per transaction (e.g., $5,000 per transfer). This method benefits the owners of larger units who pay the same amount as the seller of a studio. It can, however, be the best compromise for a building where all the apartments are relatively similar in size. This form of flip tax, if properly enacted, is also perfectly legal under the amended Section 501(c) of the Business Corporation Law.
Percentage of Sales Price. Another acceptable form of flip tax is a percentage of the gross sale price.
Percentage o f Net Profit. Perhaps the most controversial form of flip tax is one based on net profit. In this case, the cooperative must very carefully define exactly what its formula will be for determining the net profit; and the formula must be strictly and consistently applied. If your formula allows the seller to subtract from the sales price provision for improvements made to the apartment, there will be an incentive to pad costs in order to lower the net profit figure that will form the basis for the flip tax. Evidence of payment of invoices for improvements should be required.
Web Reference: http://www.clovelake.com
0 votes Thank Flag Link Wed Feb 3, 2010
Flip taxes are quite common as the other writers have mentioned. A co-op board may have the discretion (pursuant to its by-laws) to implement a flip tax or transfer fee. As Joseph has stated, the term "flip tax" was initiated to discourage investors from buying and immediately selling a unit for profit.

Some boards calculate the flip tax as a dollar amount per share or a percentage of the net profit or sales price.

Generally, boards with flip taxes use the funds to increase the co-op's reserve fund which, of course, aids the financial condition of the corporation.

For further info, see http://www. kaplanrealestatelaw.com

Please see my website for further information
0 votes Thank Flag Link Tue Feb 2, 2010
Hi Kirsten. An interesting oxymoron to say the least. This is not a Federal, State or City tax and nothing is actually being flipped!?

Yes, the concept was created by co-op boards to discourage short time owners from selling quickly. What ever the amount is, either a pecentage of the sale price, flat fee or based on the amount of shares, this money goes into the co-ops reserve fund.

Many (almost all) co-ops in Manhattan impose this "flip tax." There is no time limit either. If it's there, it's just there.

Consider this. If this is a first time purchase for you, it's a great time to buy. You've got depressed prices, historic low interest rates and a Federal tax credit to claim. Indeed, the perfect storm for buyers. Given the statistics that a first time buyer will live in their apartment for 5-7 years before selling, you're well positioned to see very good market appreciation by the time you sell.

Don't sweat this "flip tax." Go for it and then sit back and enjoy!

Joseph C. Hastings
Prudential Douglas Elliman Real Estate.
0 votes Thank Flag Link Sat Jan 30, 2010
Flip taxes are so common, offhand I can't think of a single co-op in Manhattan that doesn't impose a flip tax.

You're right historically about how flip taxes came about, but of course, once management finds an income stream, it also tends to find a way to keep the money coming!

The usual justification for flip taxes these days is to bolster the building's reserves. These are funds set aside for big emergencies or improvement projects. By having reserves, a building can avoid charging assessments for these things.

One more thing to note: Many buildings do not impose a flip tax if you sell and buy within the same building.

Karla Harby
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Charles Rutenberg Realty, LLC
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New York, NY 10022
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0 votes Thank Flag Link Wed Jan 27, 2010
Some co-ops have flip taxes, some don't--flip taxes don't have a time limit, they are collected whenever the sale takes place, no matter how long the onweship was. Flip tax amounts do vary from complex to complex.
0 votes Thank Flag Link Tue Jan 26, 2010
You are correct. In the early 80's when many rental buildings converted, huge profits were being made by former renters who bought their units at inside prices and then resold them. Called "flipping" The boards decided to impose the transfer fee and call it a flip tax on sellers to disuade flipping.

Due to increased costs and expenses many buildings have since imposed flip taxes. There are several ways a flip tax can be imposed.. In most coops it usually requires 2/3 of the shareholders to vote for it. It can be a percentage of the sale price or a flat fee or a dollar amount per share. Some buildings have grandfathered in long time shareholders. The argument for flip taxes is that it helps prevent constant maintenance increases.
0 votes Thank Flag Link Tue Jan 26, 2010
Mitchell Hall, Real Estate Pro in New York, NY
Hi Kirsten,
Some buildings have flip tax and some don't. It has nothing to do with the length of time you owned.
The co-op board or management will know if a certain co-op impose a flip tax.
It is pretty common in the NY area.
0 votes Thank Flag Link Tue Jan 26, 2010
Hi Kirsten, here on Long Island, the Flip Tax is common. The Co-Op board charges this fee to the shareholder only when they sell and it doesn't matter how long you owned it. Below is a link to a New York Times article about Flip Tax to get you started. I hope it helps you.
0 votes Thank Flag Link Tue Jan 26, 2010
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