Sticker shock at closing is avoidable. In many SoHo co-ops, a flip tax can add tens of thousands to the settlement. Whether you are selling a classic loft or buying your first co-op, understanding this fee helps you price, plan, and negotiate without surprises. This guide explains what a flip tax is, common structures in SoHo, who pays, and how to model the impact on your offer or your net. Let’s dive in.
Flip tax basics
A flip tax is a fee a co-op charges when ownership transfers. It is not a government tax. The money goes to the cooperative corporation, often to support reserves, capital projects, or the operating budget. Many Manhattan co-ops, including those in SoHo, use flip taxes to raise funds without increasing monthly maintenance and to discourage quick flips.
Rules vary by building. The proprietary lease, bylaws, or a board resolution sets the fee, how it is calculated, and who is responsible for payment.
Common SoHo structures
Flip taxes in SoHo co-ops follow a few common patterns. Your building may use one of these or a combination.
- Percentage of sale price
- A fixed percent of the gross price, often around 1% to 3%, though it can be higher or lower. Example: 2% on a $2,000,000 sale equals $40,000.
- Per-share amount
- A dollar amount per co-op share. Example: $25 per share for 600 shares equals $15,000.
- Sliding scale
- A higher fee for shorter ownership periods, or tiers by price. Example: 3% if held less than two years, 1% for two to five years, 0% after five years.
- Flat fee
- A single set dollar amount per transfer, such as $5,000.
- Combination, caps, and minimums
- Some documents apply the greater of a percent or a per-share fee, or include minimums and maximums.
- Exemptions
- Buildings may exempt certain transfers such as spousal transfers, estates, or intrafamily gifts. Check your documents for specifics.
Who pays the fee
The building’s governing documents control who is obligated to pay. Many NYC co-ops assign flip taxes to the seller, but some require the buyer to pay, and some give the board discretion. Even when documents suggest one party, buyers and sellers often negotiate who covers the fee in the contract. The co-op must accept the arrangement, and payment is typically due at closing.
Boards rarely waive a documented flip tax without a formal decision. Plan on paying as written unless you have written confirmation of an exception.
How it changes your math
A flip tax is a closing cost. If you are the seller and responsible for it, it reduces your net proceeds. If you are the buyer and responsible for it, it increases your cash needed at closing. Lenders typically will not finance flip taxes, so buyers should plan to pay them in cash if responsible.
Simple examples
Percentage flip tax, seller pays
- Sale price: $2,000,000
- Flip tax at 2%: $40,000
- Broker commission at 5%: $100,000
- Seller’s simplified net before mortgage or other costs: $2,000,000 − $40,000 − $100,000 = $1,860,000
Per-share flip tax, seller pays
- 500 shares at $30 per share equals $15,000, deducted from seller proceeds.
Buyer pays flip tax
- If the buyer pays 2% on a $2,000,000 purchase, that is $40,000 in additional cash at closing, usually not financed.
Preserve a seller’s target net
- If you want to net $1,800,000 and expect a 2% flip tax and 5% commission, ignoring other costs: Required price P satisfies P × (1 − 0.02 − 0.05) = $1,800,000, so P ≈ $1,935,484.
SoHo market factors
SoHo is competitive, and market conditions influence who pays.
- In a strong seller’s market, sellers have more leverage to keep the asking price firm and require buyers to cover or split the flip tax.
- In a softer market, buyers may insist the seller absorb the fee or reduce the price to offset it.
- Some buildings deter short-term flips with sliding-scale fees. If you might resell within a few years, confirm holding-period rules before you sign.
- Many SoHo co-op boards enforce their rules carefully. Expect to provide proof of payment before transfer approval.
Offer and negotiation tips
- Price with the fee in mind. Sellers can set asking prices that account for a seller-paid flip tax. Buyers can adjust their offer to reflect taking on the fee.
- Consider splitting the fee. A 50-50 split can bridge a gap when price alone is not working.
- Put it in writing. Specify who pays and the exact formula in the contract, then confirm with the managing agent.
- Model the net and cash. Use a quick worksheet so both sides see the same numbers.
Confirm a building’s rule
Do not assume your building’s fee or who pays. Verify early.
What to review
- Proprietary lease
- Bylaws and house rules
- Offering plan and any resale riders
- Recent shareholder meeting minutes or board resolutions
Who to ask
- Managing agent or property manager
- Co-op board secretary or the managing agent in writing
- Your co-op attorney for interpretation
- Brokers for recent resale examples in the same building
Board package timing
- The board package and approval instructions often list transfer fees and payment requirements. Ask for explicit written confirmation before you finalize contract terms.
Buyer and seller checklists
Use these quick steps to stay organized.
Buyer checklist
- Get the exact flip tax formula and who pays in writing.
- Add the fee to your cash-to-close plan. Assume cash, not financing.
- If there is a sliding scale, confirm how your planned holding period fits.
- Ask your attorney and CPA how the fee affects basis and taxes.
Seller checklist
- Confirm the fee structure and any exemptions that apply to your transfer.
- Price with the fee in mind, or plan to negotiate who pays.
- Model your net after commission, flip tax, and other costs.
- Ask your attorney and CPA how the fee affects your gain calculation.
Flip tax vs. government taxes
A flip tax is a co-op fee. It is separate from New York transfer taxes and the mansion tax. Those government taxes go to the city or state and follow statutory rules. The flip tax goes to your co-op and follows your building’s governing documents.
Next steps
If you are buying or selling in a SoHo co-op, make the flip tax part of your first conversation, not a last-minute surprise at the closing table. Get the formula, confirm who pays, and model your numbers before you negotiate. If you need help running the math or shaping strategy, connect with Donald Lai for clear guidance and a plan that fits your goals.
FAQs
In SoHo co-ops, who usually pays the flip tax?
- It depends on the building’s documents; many assign it to the seller, but buyers and sellers often negotiate and the co-op must accept the arrangement.
What is a typical flip tax amount in Manhattan co-ops?
- Common formats range from tens of dollars per share to percentage fees around 1% to 3%, but exact amounts vary widely by building.
Can a co-op board change or waive the flip tax for my sale?
- Boards can adopt or amend flip-tax rules per their procedures, and waivers are uncommon without formal action; confirm in writing with the managing agent.
Does a flip tax affect my mortgage approval?
- Lenders usually do not finance flip taxes; they affect your cash to close more than your debt-to-income, which can still derail a deal if cash is short.
Is a flip tax tax-deductible or added to basis?
- Sellers often treat flip taxes as selling expenses that reduce gain, while buyers may add them to cost basis; confirm details with your CPA.
