How a New York Flip Tax Could Kill Your Next Real Estate Deal

new york flip taxThere are currently two bills working their way through the New York state senate that would impose a “flip tax” on real estate sold within two years of purchase anywhere in the state of New York. One is an assembly bill, Assembly Bill A5375A, and the other is a senate bill, Senate Bill S3060E. Both would effectively do the same thing.

Appropriately titled “New York state small home anti-speculation act,” these legislative items are being proposed for one reason only: To discourage property speculation.

The Blatant Attempt to Kill Real Estate Speculation

Both of these bills are currently in committee. The Senate bill is making its way through the Cities Committee of the Senate and is sponsored by Julia Salazar, senator for the 18th district in New York. The assembly bill, currently in the Ways and Means Committee of the Assembly, is sponsored by Erik Martin Dilan of Assembly District 54.

Both bills also have co-sponsors.

Aptly named, if passed, the bills would impose a 20 percent tax on properties sold within one year of purchase and a 15 percent tax on properties sold within two years of purchase within the state of New York. The Senate bill states the purpose of the bill boldly as “an effort deter property speculation and flipping in vulnerable neighborhoods.” There’s no definition of what constitutes a “vulnerable neighborhood.”

Effectively, the bill could hamper property improvements throughout the state and could do so with severe effects in New York City. Here are three negative effects this legislation could have on New York:

  1. It could drive property speculators to surrounding states – Real estate investors who buy properties to fix them and flip them to new owners may have their profit potential negatively hampered by the new legislation and seek to do business elsewhere. New York is situated geographically as it is, the new legislation could have real estate developers seeking opportunity in as many as six nearby states: Connecticut, Massachusetts, New Jersey, Pennsylvania, Rhode Island, and Vermont. That’s a lot of exit holes, and the net result would be a negative for New York.
  2. Some neighborhoods could see less property improvement – Real estate moves in cycles. There are neighborhoods, especially in New York City, where large blocks of real estate are dilapidated and could use some improvement. Some of those neighborhoods are poor or undernourished neighborhoods. A property tax on flips could slow down development in those neighborhoods, which would lead to a slow down in homeownership. Rundown neighborhoods will take longer to receive the development they need to improve property values and create more homeownership opportunities. That would be bad for the state. It would be awful for New York City.
  3. Higher tax rates could mean lower government revenues – According to the Urban Institute, property taxes account for just 10 percent to 20 percent of state revenue in New York. Interestingly, five of the six surrounding states have higher property tax rates. Currently, in New York, capital gains are taxed as regular income and based on your tax bracket, but if imposing a 15 percent to 20 percent capital gain on fix-and-flip deals imposes a tax burden for real estate investors, it could lead to fewer real estate investors making fewer deals, or, as stated above, drive them to surrounding states. That could lead to less government revenue overall.

Could A ‘Flip Tax’ Affect Marketplace Lending?

The proposed legislation does not make a distinction between where you find your deals. If you live in New York state and you own a percentage of real estate for less than two years, you will have to pay the 15 percent or 20 percent capital gains tax should these bills pass. Real estate investors outside of New York will not be affected, but the same negative impacts mentioned above could affect New York real estate investors finding deals through marketplace lending platforms like Sharestates.

You should know what your senators are considering in case you want to contact your representative to voice your concerns.

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How a New York ‘Flip Tax’ Could Kill Your Next Real Estate Deal
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How a New York ‘Flip Tax’ Could Kill Your Next Real Estate Deal
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Aptly named, if passed, the bills would impose a 20 percent tax on properties sold within one year of purchase and a 15 percent tax on properties sold within two years of purchase within the state of New York.
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Sharestates
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