What Is a Flip Tax? A Guide for Westchester Co-op Buyers and Sellers
If you are buying or selling a co-op in Westchester County, you may come across a closing expense with an unusual name: the flip tax.
Despite the name, a flip tax generally has nothing to do with buying a property, renovating it and quickly reselling it for a profit. In the co-op world, the term commonly refers to a transfer fee charged by the cooperative corporation when ownership of the co-op shares changes hands.
For buyers and sellers in Westchester communities with cooperative housing, understanding whether a particular building has a flip tax can be an important part of estimating the total cost of a transaction.
What Is a Co-op Flip Tax?
A flip tax is a fee that may be imposed by a cooperative corporation when the shares associated with an apartment are transferred from one owner to another.
When you purchase a co-op, you generally are not purchasing the apartment itself as real property in the same way you purchase a condominium. Instead, you purchase shares in the cooperative corporation allocated to a particular apartment and receive a proprietary lease giving you the right to occupy that apartment.
If you're new to cooperative ownership, start with my New York Co-op Buying Made Simple guide. It explains co-op ownership, important documents, financial preparation and the board-approval process.
Who Pays the Flip Tax?
The seller commonly pays the flip tax in many co-op transactions, but that should never simply be assumed.
Responsibility for the fee depends on the requirements of the particular cooperative and the terms of the transaction. The contract should clearly address which party is responsible for the fee.
Buyers and sellers should have their respective New York real estate attorneys review the contractual and legal obligations associated with the transaction.
How Is a Co-op Flip Tax Calculated?
There is no universal flip-tax formula that applies to every New York or Westchester cooperative.
A cooperative might calculate its transfer fee using:
- A percentage of the sale price
- An amount based on the number of shares allocated to the apartment
- A flat transfer fee
- Another formula established by the cooperative
Because the calculation can vary substantially from one building to another, buyers and sellers should confirm the actual requirements for the specific cooperative involved.
A Simple Flip Tax Example
Suppose a co-op sells for $400,000 and the cooperative's transfer fee is calculated as 2% of the sale price.
$400,000 × 2% = $8,000
In this hypothetical example, the flip tax would be $8,000. If the seller is responsible for the fee, it needs to be considered when estimating the seller's closing expenses and potential net proceeds.
This is only an example. Actual transfer fees and calculation methods vary by cooperative.
Why Do Co-ops Charge Flip Taxes?
A flip tax can provide additional revenue to the cooperative corporation when apartments change hands.
Depending on the cooperative, those funds may help support:
- Building maintenance
- Capital improvements
- Reserve funds
- Building operations
Why Sellers Should Know About the Flip Tax Before Listing
For a co-op seller, a flip tax can affect the amount of money ultimately received from the sale.
The flip tax is not the only potential expense. Attorney fees, brokerage compensation, applicable governmental transfer taxes, building fees and other closing expenses may also affect a seller's net proceeds.
A cooperative flip tax should not be confused with governmental real estate transfer taxes. They are different potential transaction expenses.
For additional calculators, mortgage information, home-value resources and Westchester market information, visit my Westchester Real Estate Money Center.
Why Buyers Should Understand the Flip Tax
Even when the seller is expected to pay the flip tax, buyers should understand the building's transfer policies and overall financial structure.
Buying a co-op means evaluating more than the apartment. Buyers should also consider the cooperative corporation, financial statements, maintenance, assessments, building rules, financing requirements and board procedures.
I've put these topics together in my Complete Guide to Buying or Selling a Co-op in Westchester County.
Where Do You Find the Flip Tax?
The applicable transfer fee should be confirmed from the documents and information governing the particular cooperative and transaction rather than relying on assumptions or what another building charges.
Your attorney can review the appropriate documents and advise you about the legal obligations associated with the transaction.
As a real estate agent, I can help buyers and sellers identify questions that should be asked early in the process and help coordinate information among the parties, attorneys, lender, managing agent and other professionals involved in the transaction.
See Examples of Westchester Co-op Properties
Cooperative buildings and apartments can vary tremendously throughout Westchester County. Here are two short videos showing examples of co-op properties connected with my real estate work:
Frequently Asked Questions About Co-op Flip Taxes
Is a flip tax actually a tax?
Despite its common name, a co-op flip tax generally refers to a transfer fee imposed by the cooperative corporation rather than a governmental tax. It should not be confused with state or local real estate transfer taxes.
Does every Westchester co-op have a flip tax?
No. Co-op policies vary by building. Buyers and sellers should confirm whether a particular cooperative charges a transfer fee and how it is calculated.
Does the seller always pay the flip tax?
No. Sellers commonly pay the fee in many transactions, but responsibility should be confirmed based on the cooperative's requirements and the contract of sale.
How much is a co-op flip tax?
There is no standard amount. A cooperative may use a percentage of the sale price, a share-based calculation, a flat fee or another formula.
Can a flip tax affect a seller's net proceeds?
Yes. If the seller is responsible for the fee, it becomes one of the expenses that should be considered when estimating net proceeds.
When should I find out whether a co-op has a flip tax?
As early as possible. Sellers should understand relevant building fees when preparing to list, while buyers should understand the financial requirements of the cooperative during their due diligence.
Is a flip tax the same as the New York State transfer tax?
No. A cooperative's flip tax or transfer fee is separate from governmental transfer taxes that may also apply to a transaction.
Thinking About Buying or Selling a Westchester Co-op?
Co-op transactions have important differences from purchasing or selling a single-family home or condominium. Board requirements, financial standards, building rules, maintenance charges and transfer fees can all become part of the process.
If you're considering buying or selling a co-op in Westchester County, I can help you understand the real estate process, research available properties or prepare your co-op for the market.
Contact Thomas Roberts | RealtorTom
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View Thomas Roberts' Digital Business CardThis article is provided for general educational and informational purposes and is not legal, tax or financial advice. Co-op rules, fees and transaction requirements vary. Buyers and sellers should consult their New York real estate attorney and other appropriate licensed professionals regarding their specific transaction.
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