I am a Florida resident selling a home in New York. Will I have to pay New York State income tax?

I am often retained by out of state residents selling real property in New York who inquire about their tax liability in connection with the sale.  New York State does impose an income tax on non-residents selling New York real property when the seller realizes a taxable gain on the sale of the property.

The taxable gain is determined by subtracting your cost basis from your sale price.  There are many factors which go into determining your cost basis, such as whether you bought or inherited the property, the expenses you incurred in purchasing and selling the property and the cost of improvements to the property.  In addition, there are certain exclusions which apply which may offset or eliminate any gain.  The most common exclusion applies to individuals and married couples who occupied the property as their primary residence for two out of the past five years prior to the sale. In such a case there is a $250,000.00 exclusion for an individual and a $500,000.00 exclusion for a married couple.

If it is determined that there will be a taxable gain upon the sale of the real property, you will need to make an estimated payment of New York State tax at the closing by filing New York State tax form IT-2663 along with the deed and other documents.

If you plan on selling real property in New York State and are a non-resident you should consult with a professional well in advance of the closing in order to determine your New York State income tax liability,

 

 

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What is a Good Guy Guaranty of a New York Lease?

Whether you are just starting your business or are moving to a new location, leasing suitable space is one of the most important decisions you will be making.

In addition to signing a lease, if your business is in the form of a corporation or limited liability company,  you usually will be asked to sign a personal guaranty when you lease space in the name of your company.   Without such a guaranty, a landlord can only look to the assets of your company to satisfy claims which may arise under the terms of your lease.  A personal  guaranty will allow your landlord to  seek to enforce any claims arising under the terms of the lease against your personal assets.

A “Good Guy” clause in a personal guaranty of a lease will limit your personal  liability in the event you surrender the leased premises to the landlord prior to the expiration of the lease term.   In such a case  you would only be personally liable for money due to the landlord up to the surrender date.  While your company would remain liable, you would not be personally liable  for any future rent due your landlord for the remainder of the lease term.  Such liability could be considerable if you seek to surrender the premises early on during a long term lease.

A guaranty with a Good Guy clause will not absolve you of personal liability for any amounts due to the landlord under the lease prior to the date of your surrender of the premises and  requires that you voluntarily deliver the premises to the Landlord.

Needless to say, have your attorney  review your lease and any guaranty you are asked to sign in connection with leasing any commercial space as not all guaranties will contain a Good Guy clause.

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How Can I Obtain Title to My Deceased Spouse’s Car in New York?

Many people are aware that a married couple’s joint bank accounts and jointly owned real property passes by operation of law to the survivor upon a spouse’s death .  In such cases, it is often unnecessary to probate a will or bring an administration proceeding unless there are other assets just in the deceased spouse’s name.  What many people don’t know, however,  is that there is other property solely in the deceased spouse’s name which  passes to a surviving spouse without the need to bring a proceeding in Surrogate’s Court.

Such property is set forth in New York State’s Estates Powers and Trusts Law Section 5-3.1  as “exempt” property when a deceased person is survived by a spouse or children under 21 years of age.  This property is exempt, that is, not part of the deceased person’s estate or subject to claims of creditors.  Included as exempt property is a motor vehicle worth up to $25,000.00, cash in bank accounts up to $25,000.00 and other property such as household appliances and furniture not exceeding $20,000.00 in value.

The New York State DMV will issue a new title to a surviving spouse, provided the vehicle is worth $25,000.00 or less, and the surviving spouse may continue to use the vehicle until the deceased spouse’s registration and/or insurance expires.  See the NYS DMV’s website for additional information.

If you have any questions concerning what property of your spouse’s may be exempt and whether you need to probate a will, be sure to consult with an attorney experienced in these matters.

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Should I use a Quitclaim Deed to transfer a New York Home to a Family Member?

When I’m retained by clients to convey real property, such as a one-family home to a family member, I’m often asked if I will be preparing a quitclaim deed.  I tell my clients that in the New York Metropolitan area, the type of deed customarily used to convey real property, whether to a third party in an arm’s length transaction or to a family member, is a “Bargain and Sale Deed with Covenants against Grantor’s Acts.”  Why then do I commonly hear clients refer to “Quitclaim Deeds”?

The New York State Real Property Law recognizes several types of deeds to be used to convey real property. A quitclaim deed is among the recognized forms.  Nevertheless, the customary practice among local attorneys in New York will determine the appropriate deed to be used.  While there is no case law or statute prohibiting the use of a quitclaim deed to convey a home in the New York Metropolitan area, its use would be unusual and could raise questions down the road.

Other states do use the term “Quitclaim Deed” to describe the deed typically used to convey real property, which may partially explain people’s familiarity with the term.  The term “Quitclaim Deed” is also much easier to remember than  “Bargain and Sale Deed with Covenants against Grantor’s Acts” which is quite a mouth-full.  To borrow a phrase from the late Speaker of the House Tip O’Neil, who famously said “All politics is local,”  all real estate customs are local, especially the choice of a deed to use in conveying real property.

 

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Do I need an attorney to prepare my New York will?

With the proliferation of computer software and websites promising to save you money by assisting you in preparing legal documents, naturally people wonder whether they need an attorney to prepare their last will and testament.  Since you’re reading my legal blog, you probably already know my position on this matter.  In case you don’t, let me explain why using such  “do it yourself” software or websites may prove more costly in the long run and even result in your will being denied probate.

The preparation of your last will and testament is only the first step in assuring your will will be admitted to probate by the New York Surrogate’s Court upon your demise.  Your will must contain the necessary provisions to assure the appointment of your executor, and the disposition of your estate.  Assuming the contents of your “home-made” will pass muster, it is crucial that your will be signed before competent witnesses with the proper formalities required under New York State law.  If this is done under the supervision of an attorney, there is a  presumption that the legal formalities have been complied with.  This is not the case when an attorney is not involved.  Any failure in following these requirements can result in the will being denied probate and thus frustrating your wishes.

Not retaining an attorney to prepare and supervise the execution of one of the most important documents you will sign during your lifetime is definitely not something you should consider in order to save a small sum of money.  Doing so could cost your heirs or beneficiaries time and money in the long run and more importantly, could prevent your last wishes from being carried out.

 

 

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I own a New York City Co-op but can’t find my stock and lease. Will I be able to sell my apartment?

As an owner of a cooperative apartment in New York City, you already know that your ownership interest consists of shares of stock in the cooperative corporation and a proprietary lease which entitles you to possession of  your apartment.  When you transfer ownership of the apartment, you will need to surrender the original stock certificate and  proprietary lease at the closing of your sale.

If you purchased your apartment with a loan from a bank, the original stock certificate and proprietary lease would have been taken by the bank’s attorney at the closing of your purchase and held by the bank until your loan is paid off.  When you are under contract to sell your apartment, your attorney will need to contact your bank well before the anticipated closing date to arrange to have your bank deliver the original documents to the closing.  Often banks take several weeks or more to locate and send these documents to their attorneys.  The bank’s attorneys will then send a representative to the closing to deliver the stock certificate and lease upon receipt of a check paying off your loan.

On the other hand, if you purchased your apartment without bank financing, you would have been given the original stock certificate and proprietary lease at your closing.  When you are selling your apartment and cannot locate the original documents, you or your attorney must contact the co-op’s management company or their attorney to see what their policy is concerning lost stock certificates and leases.  Some co-ops only require a “lost instrument affidavit and indemnification” which you will sign at the closing.  Of course you will be charged an additional fee for the preparation of these documents.  Other co-ops require that you purchase a lost instrument bond from a surety company, the cost of which depends upon the amount of the bond.

Needless to say, if you receive the original stock certificate and proprietary lease when you buy your cooperative apartment, keep them in a safe place such as a safe deposit box or you may be faced with additional costs and delays if you can’t locate them when you decide to sell. Even if you believe you have the original documents, it’s a good idea to let your attorney review them prior to closing to make sure you won’t have any problems.

 

 

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When I buy or sell a home in New York do I have to close on the closing date in the contract?

Almost all contracts for the sale of homes, including contracts for the sale of co-op apartments and condominiums, in the New York Metropolitan area have an “on or about” closing date.   This date is typically  approximately 60 calendar days after the date the contract has been signed by both the buyer and seller.  The legal significance of the  phrase “on or about”  is that it has been interpreted by the New York Courts to mean that both parties have a reasonable time beyond that date in which to close.

While the New York Courts haven’t stated the number of days which would be considered reasonable, attorneys in the New York Metropolitan area have come to a consensus that 30 calendar days is a reasonable time absent any unusual circumstances.   For example, if your contract has an “on or about” closing date of July 22, 2013, both the buyer and seller have until August 22, 2103 to close the transaction.  After the expiration of 30 days if a party is unwilling or unable to close, the attorney for the other side will typically send a “Time of the Essence” letter setting forth a new closing date, usually within 10 days of the date of the letter.  If the delaying party is unable to close by the “Time of the Essence” date, they will be in default under the terms of the contract.

If  the buyer is ultimately determined to be in default by a court, the seller will be entitled to keep the buyer’s down payment as damages.  If it is the seller who is determined to be the defaulting party, the buyer may either cancel the contract and receive their down payment back or the court may order the seller to close, a remedy called “Specific Performance” which is unique to real property contracts.

It is always a good idea before you sign a contract, either as a buyer or seller, to discuss with your attorney when you would like to close so your attorney can adjust the “on or about” closing date if necessary.

 

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Do I need to obtain a Certificate of Occupancy if I’m adding a deck to my Queens, NY home?

A Certificate of Occupancy is a document issued by the New York City Department of Buildings which is evidence that a home or addition to a home, such as a deck, has been built in accordance with plans approved by the Building Department and may legally be used or “occupied.” When buying a home, your attorney will review a report of title to make sure, among other things, that there is a certificate of occupancy (or “C of O”) for the home and any additions made to the home since it was built; such as a dormer, extension or deck.

Under the standard contract of sale used by New York City attorneys, the seller is obligated to provide such C of Os. While a seller may have cut corners when adding, say, a deck, by not filing proper plans and obtaining a C of O (yes, it is less expensive in the short run to build a deck without the proper permits) they would now have to retain professionals to file the necessary plans and undertake any remedial work which may be required to obtain the C of O. In the long run, a home owner may wind up spending more money to correct the problem created by not obtaining a C of O in the first place.

Even if you’re not planning on selling your home, by not obtaining a C of O when you build your deck, you could expose yourself to potential liability if someone is injured due to your deck not conforming to building department specifications. A tragic example of this occurred in Queens not so long ago when a second story deck collapsed resulting in injuries and a fatality. It turned out that there was no C of O for the deck and it was not built in compliance with Building Department regulations. What would otherwise have been a tragic accident became a potential multimillion dollar lawsuit.

If you plan on building a deck, or buying a home with an existing deck, be sure you consult with professionals.   You’ll enjoy your deck more knowing it’s legal and above all, safe for you and your family.

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What Not to Tell Your Real Estate Broker When Buying a Queens New York Home.

Many people  seek the services of a real estate broker when house hunting.  Real estate brokers and their sales people provide valuable services to both buyers and sellers of properties in New York.   Nevertheless, as a buyer, it is important to understand the real estate broker’s relationship with you, else in some cases you may inadvertently put yourself at a competitive disadvantage when bidding on a property.

To understand how this could occur, you must know who the broker is working for as this fact determines what duties the broker owes to each party in the transaction.  In the vast majority of cases in New York, the broker has been hired by the seller and owes, among other duties, that of confidentiality and full disclosure to their employer, the seller.  The only duties they owe to you, the buyer, is that of honesty and fair dealing. If you, as a buyer, tell the broker certain information that you don’t want to get back to the seller, say for instance your top price, not only is the broker under no obligation to keep this information confidential, but, in fact, has a duty to disclose this to the seller.  You can imagine how this could weaken your bargaining position.

The scenario where a buyer mistakenly believes the broker is working for them and owes them a duty of confidentiality, is not far fetched.  In fact, a  study conducted by the Federal Trade Commission showed a large percentage of buyers believed just that.  As a result, many states, including New York, enacted legislation requiring brokers to disclose, in writing, exactly who they are working for and what duties they owe to each party.

If you keep in mind who the broker is working for when you are house hunting, you can increase your chances of getting your new home at the best possible price.

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Do I Need to Pay Sales Tax When I buy a Business in New York?

When you purchase a New York business, you will need to pay sales tax on the value of the personal property included in the sale.  The sales tax rate depends on the county in which the business is located. In the counties comprising New York City, the sales tax rate is 8.875%.

Your purchase agreement will typically allocate the purchase price of the business among various items, for example, Good Will, a Covenant Not to Compete, a Lease, Inventory, Equipment and Motor Vehicles.  Sales tax will be due on the value allocated to the personal property; in this example, the equipment and motor vehicles.

To comply with the New York State sales tax law,  you must  file form AU-196, Notification of Sale, Transfer or Assignment in Bulk, at least ten days prior to the closing of the transaction.   In the form, you allocate the purchase price among the various items as set forth in your contract of sale.  Based on this allocation, the Tax Department will send the purchaser an invoice for the sales tax.   Additionally, the  Tax Department will perform an audit to determine if the seller has any unpaid sales tax liability.

If your  closing takes place  prior to the State’s determination of the seller’s sales tax liability, the tax law provides that the State can look to the purchaser for payment of any sales tax which may be due from the seller.  Most purchase agreements therefore will  provide for a portion of the purchase price to be held in escrow by the seller’s attorney until a final determination by the Department of Taxation of the seller’s sales tax liability, if any. Any sales tax liability of the seller will then be paid from this escrow

The allocation of the purchase price in an agreement to purchase a business will have other tax consequences in addition to determining the sales tax so it’s advisable to consult with your attorney and accountant when making the allocation in your contract.

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