Usually condo buyers have two options: either buy an “old condominium”, i.e. secondhand (usually buying from an individual owner) or a “new condo”, i.e., sponsor unit (buying directly from the developer).
Real Estate Taxes
If you are buying a sponsor unit, the condition of the unit is usually brand new, unless the sponsor rented it out before the sale. In addition, buyers of a sponsor unit in New York City get to enjoy the benefit of a real estate tax exemption. This means the buyer will pay very little in real estate taxes each year, as compared to many secondhand condo units.
Exactly how low can the taxes be on a sponsor unit? They can be as low as less than $50.00 per month.
This is a major benefit for younger people who are buying a sponsor unit, because their monthly carrying on expenses would be significantly less. However, the tax exemption has a limit, which is usually 15 years. In the first 10 years, the exemption of real estate taxes is fully applied, but then the benefit phases out gradually over the remaining 5 years (taxes will be increased by 20% each year).
All the real estate taxes set forth in the advertisement and offering plan are only an estimate. Each buyer should do his/her own due diligence to find out the exact amount.
Resale
How do you pick the best time to sell a sponsor unit that you bought? It is best to sell it before the real estate tax benefit runs out. If you wait 10 years, the pool of prospective buyers for your unit will most likely be restricted because they know they would have to pay higher real estate taxes in the near future.
Real Estate Transfer Tax
One factor to consider is the real estate transfer tax. In New York City, it is a common practice that a buyer of a sponsor unit pays the real estate transfer tax, both on the state and city levels. On a purchase price below $500,000, the buyer has to pay a transfer tax of about 1.4% of the entire purchase price (about 1.825% if over $500,000.00). In addition, the buyer might have to pay fees for the sponsor’s attorney, offering plan and tax abatement, etc.
When buying a sponsor unit, a buyer should know the upfront costs associated with the purchase, and the approximate real estate taxes in 15 years, before making their offer.
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Jacqueline Huang Huang & Associates, P.C. 6402 8th Avenue, Suite 405 Brooklyn, NY 11220 Telephone: (718) 435-666 Email: jackiehuang@huanglawfirm.com  |
