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New York City Mortgage Recording Tax

New York is famous for its complex tax codes. One of the important taxes homeowners in the five boroughs should be aware of is the NYC mortgage recording tax. This tax applies to anyone getting a mortgage to finance their home purchase and often contributes to higher closing costs.

There are so many fees and taxes associated with buying a home in New York City, making it difficult to keep track of them all. So, to help you prepare here is everything you need to know about the NYC mortgage recording tax.

What is Mortgage Recording Tax in NYC?

The New York City mortgage recording tax (MRT) is fairly self-explanatory. It’s a tax imposed on the privilege of recording a mortgage on a property within the five boroughs. The mortgage tax is not levied against the actual purchase of a building. It relates to the borrowing of a sum of money to pay for a property.

So, you will not have to pay this additional tax if you pay cash for the home. But the vast majority of homeowners finance at least a portion of the purchase and therefore are subject to the tax. Also, be aware that New York State also charges its own mortgage recording tax, separate from what the city charges.

How Much is Mortgage Recording Tax in NYC?

The city charges a percentage of the loan amount, depending on the borrowed sum. The rate for loans under $500,000 is 1.8% and the rate for loans above $500,000 is 1.925%.

The tax is based on a percentage of the loan, not necessarily the purchase price. So, if you can kick in more cash to reduce the size of the loan you need, this can help reduce your mortgage tax. Likewise, you will pay a higher MRT rate if you need to borrow more to pay for closing costs and other expenses.

The actual tax levied by the state is closer to 2.05% (for loans less than $500,000) and 2.175% (for loans over $500,000). But it’s customary for the lender to pay 0.25% of the NYC mortgage tax. So, you don’t have to foot the bill all on your own.

Who Pays Mortgage Recording Tax in NYC?

The buyer is the one responsible for paying the NYC mortgage recording tax. They are the one who is taking out the loan, so it only makes sense for them to pay the tax. The lender will also likely agree to pay a small percentage, but the bulk of the tax burden falls on the shoulders of the buyer.

Also, keep in mind that this tax applies to the recording of all new mortgages. This includes mortgages used for the purchase of a new home, as well as an investment property. Every time you record a new loan with a lender, you will be subject to this tax. So, keep that in mind while doing any financial planning.

How is Mortgage Recording Tax Filed?

Homebuyers can use the City’s Automated City Registrar Information System (ACRIS) to find the correct documents to file an MRT. You will need to fill out an MT-15 form or a mortgage recording tax return.

Just like your personal tax return, you will fill it out with information about the transaction to determine how much money you owe the city. ACRIS will also have instructions about how to file the return when you’re finished. 

The tax should be made payable to the county recording office where the mortgaged property is located. The New York City Registrar’s Office will collect the tax in Manhattan, Brooklyn, Queens, and the Bronx. In Staten Island, the Richmond County Clerk will collect it.

New York Mortgage Tax Example

Although this may sound very complicated, it’s quite easy to calculate your NYC mortgage tax. Here are a few examples at different tax rates to show you how it works.

Purchase price: $400,000

Down payment: $80,000

Loan amount: $320,000

Mortgage Recording Tax Rate: 1.8%

Total Amount Taxed: $5,760

Purchase Price: 1,200,000

Down payment: $240,000

Loan amount: $960,000

Mortgage Recording Tax Rate: 1.925%

Total Amount Taxed: $18,480

As you can see, the calculation isn’t difficult. But it’s certainly something to keep in mind because this tax can quickly add several thousand dollars to your closing costs. Plus, if you cannot make the full 20% down payment, you will be paying even more in taxes for borrowing the additional funds.  

How to Avoid Paying the Mortgage Recording Tax

Although this tax will be levied against the vast majority of homebuyers in New York, there are ways that you can avoid paying it. Here are a few of the most common.

Purchase a Co-Op

A Co-Op purchase is not subject to the MRT because buyers aren’t technically getting a mortgage. A mortgage must be secured by an interest in a piece of real property. When you purchase a co-op, you are not purchasing a property. You are purchasing shares in the company that owns the building and a proprietary lease in a unit. Even though you may still be financing the purchase, you will not be subject to a mortgage tax because the shares in a co-op are considered personal property, not real property.

Get a CEMA Loan 

A Consolidation, Extension, or Modification Agreement (CEMA), is a transaction where the buyer agrees to take over the seller’s existing mortgage. Because no new mortgage is being created, buyers are not subject to the MRT in this scenario. This option is a bit more complicated because the seller must still owe a large sum of money on the home for it to make sense. Plus, the seller and their lender must agree to the arrangement. But if you can pull it off, getting a CEMA loan is another common way to get out of paying NYC mortgage tax.

Does the Mortgage Recording Tax Apply to Other Types of Mortgages?

Yes, the mortgage recording tax can often apply to different types of mortgages. It always applies to new mortgages created to finance the purchase of a primary residence, vacation home, or investment property. But it may apply to other types of mortgage loans as well.

For example, a home equity line of credit (HELO) is subject to MRT. The tax is based on the total amount of credit you receive, not just what you pay. So, if you get a credit line for $100,000 but only use $20,000, you will still pay tax on the $100,000.

If you are refinancing your existing mortgage, you shouldn’t have to pay an additional tax because no new loan is being created. But you should consult your lender before you agree to the terms, just to make sure.  

Is the New York Mortgage Recording Tax Deductible? 

Unfortunately, the New York mortgage recording tax is not tax-deductible as normal property taxes. But they do add to your overall cost basis for the home. 

You cannot write off the mortgage tax as a deduction on your tax return when you take out the loan. But you can use it as an expense related to the ownership of the home, which can help you reduce any capital gains taxes when you eventually sell.

So, you should consult with a licensed CPA and keep track of any tax payment records to save yourself a headache later on.