Selling or buying a Midtown co-op and keep hearing about a “flip tax”? You are not alone. This line item can change your net proceeds as a seller and your offer strategy as a buyer. In a few minutes, you will understand what a flip tax is, how Midtown buildings calculate it, who typically pays it, and how to plan your transaction around it. Let’s dive in.
Flip tax basics
A flip tax is a fee a co-op corporation charges when a shareholder transfers their shares or proprietary lease in a sale. You will see it at closing, listed as a transfer charge. The exact rule lives in the co-op’s governing documents, usually the proprietary lease, bylaws, house rules, or a board resolution.
Why buildings use it:
- Raise funds for operating budgets or capital reserves.
- Discourage short-term speculation.
- Share transfer costs among shareholders.
In New York, flip taxes are a building-level policy. A properly adopted rule should be reflected in the co-op’s offering plan or corporate records. Boards may have limited discretion to waive or adjust the fee if the documents allow it. In Midtown Manhattan, flip taxes are common, especially in older or converted co-ops, but the details vary widely from building to building.
How buildings calculate it
Co-ops in Midtown tend to use one of a few standard formulas. Always confirm the exact method and rate in the building’s documents.
Percentage of sales price
- Method: fee equals a set percentage of the gross contract price.
- Typical range: many buildings use 1% to 3%, though some set higher or tiered rates.
- Example: 2% of a $1,000,000 sale equals $20,000.
Percentage of profit
- Method: fee equals a percentage of the seller’s profit (sales price minus documented cost basis, and sometimes minus certain selling costs). What counts as an allowed cost varies by building.
- Example: $1,000,000 sale, $700,000 basis, $300,000 profit; 25% on profit equals $75,000.
Per-share fee
- Method: a flat dollar amount multiplied by the number of co-op shares allocated to the apartment.
- Example: $100 per share with 100 shares equals $10,000.
Flat fee
- Method: one set amount for all transfers.
- Example: $7,500 for any sale.
Hybrid or capped formula
- Method: a mix, such as the lesser of a set percentage or a dollar cap, or different methods for different transfer types.
- Example: the lesser of 2% of price or $50,000.
Why the method matters
- Sales-price formulas are simple and predictable.
- Profit-based formulas can be larger on high-gain sales and require documentation.
- Per-share formulas scale with the unit’s allocated shares.
- Flat fees are simple, but can feel high or low depending on price.
Who pays and when
- Timing: the flip tax is typically due at closing and appears on the closing statement. It may be paid from sale proceeds or by separate funds.
- Who pays: most co-ops assign payment to the seller, but some allow the parties to allocate the cost in the contract. You cannot force a board to waive it, but a buyer and seller can agree who covers it between themselves.
- Waivers or exemptions: some boards can waive or reduce the fee for certain transfers, such as intra-family, transfers on death, or hardship cases, if the documents allow it. Policies differ by building.
How it affects your numbers
A flip tax reduces seller net proceeds unless the seller offsets it with price or negotiates for the buyer to pay some portion. Buyers should factor it into pricing dynamics, since a high flip tax can affect a seller’s bottom line and their flexibility.
Example net sheet (hypothetical):
- Sale price: $1,000,000
- Flip tax at 2%: $20,000
- Real estate commission at 5%: $50,000
- Estimated net before mortgage payoff and routine closing costs: $930,000
Lender and closing coordination: if you have a mortgage, make sure the closing statement includes the flip tax so your payoff and any building balances get covered. If proceeds are tight, confirm whether you will need to bring funds.
Tax treatment note: for many sellers, a flip tax paid at closing is treated as a selling expense that can reduce taxable gain. The proper treatment depends on your facts and current law. Speak with a CPA or tax attorney for guidance.
Midtown due diligence checklist
Midtown co-ops vary, even on the same block. Before you list or bid, confirm the building’s current policy.
Documents to review:
- Proprietary lease and bylaws for the flip-tax authority and formula.
- House rules or board resolutions for administrative details and waiver procedures.
- Offering plan for disclosure of transfer charges in converted buildings.
- Written confirmation from the managing agent or co-op attorney about the current practice.
- Recent closing statements from the building, if available, to see how fees were applied.
Details to confirm:
- Exact calculation method and any tiers or caps.
- Who is obligated to pay under the documents, and whether allocation is negotiable.
- Whether the board can waive or reduce the fee, and if it has done so recently.
- Any exemptions for intra-family transfers, transfers on death, or other cases.
- For profit-based formulas, what documentation you need to prove basis and costs.
- Whether the fee applies to corporate or trust sellers, assignments, sublets, gifts, or transfers to the co-op corporation.
Strategy for sellers
If you are selling in Midtown, plan for the flip tax early and build it into your pricing and negotiation plan.
- Price strategy: decide whether to absorb the fee or aim to recapture some of it in the list price based on current comps. Market conditions will guide how much you can pass through.
- Disclose clearly: include the flip-tax method in your listing remarks and marketing materials to set expectations and avoid late-stage friction.
- Net sheet: run a detailed net with your agent and attorney, including the flip tax, so you know whether you will need to bring funds to close.
- Contract allocation: if building rules allow, consider negotiating buyer contribution to the flip tax in exchange for a price, timing, or other term that is valuable to the buyer.
- Waiver requests: if your situation may qualify under the building’s rules, ask management early about potential waivers or reductions.
Strategy for buyers
As a buyer in a Midtown co-op, you may not owe the flip tax directly, but it can still affect your offer.
- Offer structure: if the flip tax is large, a seller may be less flexible on price. You can offer to share the fee to strengthen your offer if the building’s documents permit.
- Appraisal and financing: remember that any price increase to cover a flip tax must still appraise. Keep your lender looped in on the final contract terms.
- Closing calendar: confirm when and how the flip tax will be collected so the co-op can issue shares and the proprietary lease without delay.
Quick pre-contract checklist
Use this quick list before you sign.
- Identify the flip-tax method, rate, and any cap in writing.
- Confirm who pays by default and whether allocation is negotiable.
- Ask if the board has granted waivers or reductions recently.
- For profit-based formulas, list the documents you will need to prove basis and costs.
- Ensure your attorney has the proprietary lease, bylaws, house rules, offering plan, and any relevant board resolutions.
- Model your net proceeds or purchase budget with the flip tax included.
Work with a local team
Flip taxes are a routine part of Midtown co-op deals, yet the details are never one-size-fits-all. You deserve a clear plan that fits your building, timeline, and goals. Our team combines Midtown market fluency with hands-on guidance to help you price, negotiate, and close with confidence. If you are selling, we will model your net and strategy. If you are buying, we will help you confirm building policy and structure a clean offer.
Ready to talk through your co-op and its flip tax? Contact Miller Schackman for a focused consultation or to get your free home valuation.
FAQs
What is a flip tax in Midtown co-ops?
- It is a building-imposed fee charged by a co-op corporation when shares and the proprietary lease transfer at sale, set by the building’s governing documents.
How do Midtown co-ops usually calculate flip taxes?
- Common methods include a percentage of the sales price, a percentage of profit, a per-share fee, a flat fee, or a hybrid with caps; each building chooses its own formula.
Who typically pays the flip tax in Midtown co-ops?
- Most buildings assign it to the seller by default, but some allow buyers and sellers to allocate the fee in the contract if the documents permit.
When is the flip tax paid during a co-op sale?
- It is usually due at closing and appears on the closing statement, paid from sale proceeds or separate funds as required.
Can a co-op board waive or reduce the flip tax in Manhattan?
- Some boards can waive or reduce the fee for specific cases, such as intra-family transfers or hardship, if allowed by the governing documents.
How does a flip tax affect a seller’s net proceeds?
- It reduces net proceeds unless offset by price or buyer contribution; smart pricing and negotiation can help manage the impact.
What documents show a co-op’s flip-tax policy?
- The proprietary lease, bylaws, house rules, offering plan, and any board resolutions are the primary sources; management or the co-op attorney can confirm current practice.
