New York State Advisory Opinion
We are happy to report that CDEC recently received an Advisory Opinion from the New York State Department of Taxation and Finance that we thought might be of interest to you. The Advisory Opinion addresses Real Estate Transfer Taxes in a reverse exchange under IRC Section 1031.
New York Tax Law §1402(a) imposes a Real Estate Transfer Tax on each conveyance of real property or interest therein when the consideration exceeds five hundred dollars.
The question we asked was: Is the Real Estate Transfer Tax due when the Exchange Accommodation Titleholder (EAT) transfers parked replacement property to the Taxpayer at the conclusion of the exchange?
The Advisory Opinion examines the relationship between the EAT and the Taxpayer and concludes that the EAT is, in substance, the agent of the Taxpayer in that the EAT is economically neutral throughout the transaction, does not use any of its own funds to pay for the properties, and reports no gain or loss from the purchase or sale of the property. Because the EAT is serving as the agent of the Taxpayer, the transfer of the parked replacement property from the EAT to the Taxpayer is for no consideration and, as such, exempt from New York Real Estate Transfer Tax under §1405(b)(4).
We believe the conclusion dovetails nicely with our New York City Department of Finance Real Property Transfer Tax Ruling and our PLR 200148042 which allows us to include an express declaration of agency in our qualified exchange accommodation agreement.
Here is a copy of the NYS Advisory Opinion for your review.