Below is a list of frequently asked questions with regard to real estate transactions. If you have any further questions, please email Gary at firstname.lastname@example.org.
As a New York State attorney I am presenting the information below based on New York State Law and the Internal Revenue Code. For information related to other states, please consult a legal professional licensed in that state.
Why Refinance - Generally you are going to refinance to obtain a better interest rate which will lower your monthly payments. To make it worthwhile you shold recover the refinancing costs within 24-60 months of the refinancing. In other words, if it cost you $3600 to refinance you should have monthly payment reduction of $60-150 per month. The greater the monthly savings, the greater the value of refinancing.
Refinance Costs - For many of you who have purchasd homes in New York State you are aware that the major additional closing cost was title insurance and the mortgage recording tax. These costs can be present again in a refinance transaction.
What About Points? - Points on a refinance are deductible over the life of the loan, so therefore it is not a great write off. However points paid on a previous refinance ar deductible on a subsequent refinance.
Is the sale of my home tax free?
Income Tax - If you lived there for two years out of the last five before sale and the profit is less than $250,000 per owner, then the profit will be tax free. If you lived there less than two years and are moving due to relocating for a job or medical reasons, part of the gain may be tax free. If you had a home office in the residence, you will have to pay some tax on the depreciation you took while living there. Losses are not deductible!
Transfer Taxes - New York State imposes a tax on sellers of .4% on the total sale price. New York City imposes a tax on sellers of 1% where the sale price is $500,000 or less and 1.425% where the purchase price exceeds $500,000.00 Mount Vernon and Yonkers also have transfer taxes.
When I purchase do I pay any taxes?
Mortgage Recording Tax - The buyer pays a tax based on the amount of the mortgage to have it recorded. Traditionally, lenders will pay 1/4% of that tax but not in all circumstances. Tax rates are in flux as the State and Counties need to raise money. Check with me at the time you are contemplating a buy.
Mansion Tax - Where purchase price of residence exceeds $1,000,000.00 New York State imposes a 1% tax on the buyer.
Peconic Bay Transfer Tax (Eastern Long Island) - Purchaser pays 2% tax on purchase price about $250,000.00 in most towns. $150,000.00 threshold in Southold and Riverhead.
What other Closing Costs are there?
Seller - Pays real estate broker fee of anywhere from 2-6% of sale price if listing with broker. This is negotiable. Seller also pays legal fees to their attorney for preparation of contract and closing documents as well as attendance at closing and support during process. Mortgage payoff charges as well.
Buyer - Title insurance is primary closing cost for buyer. Check www.judicialtitle.com and go to "rate calculator" to see the costs for title and related fees. The bank also receives fees taken out of the loan amount for processing costs such as application fees, credit checks, underwriting fees and in some cases "points". Points are prepaid interest and generally are paid in order to lower the interest rate on a loan. Legal fees are paid to buyers' attorneys for review of contracts, offering plans for coops and condos, review of title insurance reports and attendance at closing as well as support throughout the process. You will also have to purchase hazard/fire insurance in certain transactions. The lender will generally require payment of certain taxes and insurance in advance. The bank collects these monies and hold them until payment is due to the real estate taxing authority or insurance company. Depending on when in the real estate tax cycle you are making your purchase, these can be quite high. Finally, there will be adjustments in favor of the seller if they have prepaid taxes that extend beyond the date of sale. Unpaid taxes will be paid by the buyer and buyer will receive a reduction in the purchase price for the period up until closing that the seller had not paid.