How to Reduce Your Tax Bill when Selling Your NYC Apartment
New Yorkers who are selling their apartments for the first time may find themselves taken aback by how much money they have to pony up in the process. Closing costs can run up to 8-10 percent of the sales price of your home, with taxes accounting for a fair chunk of that.
There are a number of taxes New York City sellers may face, including a real property transfer tax, which can range from 1 to 2.625 percent, depending on property type and value; a state transfer tax, at $2 for every $500 of the sales price; a capital gains tax on the profit you make on your home, which varies depending on your income bracket; and for some co-ops, flip taxes, calculated in a variety of ways.
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These expenses add up quickly, but there are a few ways to reduce your tax bill, primarily to do with the capital gains tax.
First, if the apartment is your primary residence, you have owned it for at least two years, and you have lived in it for at least two of the last five years, you don’t have to pay taxes on the first $250,000 of your profit if you’re single, and $500,000 if you are married.
“If you’re in New York City and have had your apartment for years, then you could have capital gains in excess of that $250,000,” says Koreen Jervis of Korjé Tax Professionals.
If this is the case, you can offset capital gains charges if you’ve paid for what are called capital improvements, either via renovations on your apartment or assessments for the entire building. These costs, as Realtor.com explains, can be added to the figure of what you initially paid for your apartment, thus reducing your profit upon selling, and the taxes you must pay on it. To do this, you have to understand what qualifies as a capital improvement.
“It has to be something that increases the value of your apartment,” Jervis says. “It’s something permanent that you can’t take with you. A new fridge or new appliances aren’t capital improvements, but if you build a new kitchen or put in a new bathroom, it is, because it’s permanent and adds value.”
Regular repairs—like painting or putting in new carpeting—probably won’t qualify as capital improvements, unless you made these changes with the purpose of getting your apartment ready to sell. In this case, Jervis says, they’re is tax-deductible, because they’re not considered routine maintenance.
Furthermore, if you own a condo or co-op, you can factor in your contributions to capital improvements in the building, as well.
“Go to building management and get documentation on assessments that went to capital improvement, and what your share was,” advises Kyle Wissel of the accounting firm Mazars USA.
As with your individual apartment, capital improvements for a co-op or condo building must add to the property’s value and be permanent—think a new roof—rather than maintenance, like fixing broken windows.
A further deduction you can take is the closing cost from when you first purchased the apartment, Jervis adds. In general, it’s important to keep good records of what you’re investing in your apartment over the years.
“A lot of people forget that it’s important to keep track of all the improvements you’ve made to your home. You have to keep records that are contemporaneous with the work you’ve performed,” Wissel says. “If you’ve owned something long enough, there’s no doubt you’ve made improvements.”