The flip tax is a private transfer fee that many new york coops impose on shareholders. In the late seventies and 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.
Many subsidized housing programs such as Mitchell Lama and HDFC "limited equity" forms of ownership. The flip tax limited the equity. The property is sold at below market price to families who meet the income requirements of the affordable housing program. Taxes are reduced and maintenance remains "affordable" In exchange for the subsidy when the owner sells they share the profit with the coop through a flip tax hence "limited equity.
Joe mentioned the different types of of flip taxes that a coop can impose. In my experience any building with a high 30% flip tax is most likely a subsidized coop such as HDFC (Housing Development Finance Corporation) or a subsidized coop that privatised after 30 years like Mitchell Lama coops.
Many of these buildings were sold to existing tenants by the city 25-30 years ago. A 2 or 3 bedroom in an affordable housing program may have cost $250 - $5,000 30 years ago. Today many of these units can be sold for hundred of thousands of dollars. The revenue from the flip tax associated with this type of housing goes back to the coop used or capital improvements and in some cases a portion of the subsidy goes toback NYC.
The flip tax is explained in the offering plan and proprietary lease.
Mitchell Hall, Associtate Broker
The Corcoran Group
1. A flat fee allocated to specific units.
2. A dollar amount based on shares allocated to the subject unit.
3. A percentage based on the purchase price
4. A percentage based on the net profit of the purchase price.
5. A fee based on the length of time the seller has owned the apartments (shorter time
periods of ownership typically bring higher fees)
If it is in the ad that the buyer must pay 30%, then either it is dictated in the house rules and it was calculated based on the duration of time, the seller has owned the apartment.
Best of luck! Let me know if you jave any other questions.
Vice President Associate broker NYRS
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 of 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