NY Real Property Law § 339-ee
NY Real Property Law § 339-ee allows for a tax credit to developers of condominiums. When a sponsor is developing a condominium they will pay a mortgage tax on the underlying construction or blanket mortgage that is used to develop and build the condominium. Purchasers will receive a credit for the mortgage tax paid by the developer when they purchase the condominium units. Purchasers of the units can be contractually obligated by the developer to return the tax credit to them.
Eligibility:
The conditions of § 339-ee must be met for a sponsor to be eligible for the mortgage tax credit. Under § 339-ee, the following conditions must be met:
1. The proceeds of a construction mortgage were applied to the construction of a condominium
2. A condominium unit is subject to a blanket mortgage and the proceeds of the mortgage were applied to:
a. The payment of the construction mortgage, or
b. Capital expenditures or expenses for the development or operation of the condominium, or
c. The purchase of land or buildings for the condominium
3. The purchase of a condominium unit cannot be more than 2 years prior to the recording of the declaration of the condominium
4. A mortgage recording tax was paid on the construction or blanket mortgage by the Sponsor.
The mortgage tax credit is the product of the purchaser’s percentage of interest in the common elements of the condominium and the mortgage tax already paid on the construction or blanket mortgage by the Sponsor.
The above conditions must be detailed in a 339-ee Affidavit a/k/a Affidavit for Credit Against Mortgage Tax Pursuant to Section 339-ee of the New York Real Property Law. The title company will file the affidavit with the recording of a purchaser’s mortgage.
Exceptions to Eligibility:
A mortgage tax credit is not permitted where there is a special additional mortgage recording tax imposed by Section 253(1)(a) of the NY Tax Law or where the first condominium sold is more than 2 years after the construction or blanket mortgage was recorded.
Below is an example of how the mortgage tax credit operates under NY Real Property Law § 339-ee:
A purchaser has entered into a contract to purchase a unit in a new construction condominium. The purchase price of the unit is $18,000,000.00. The unit’s common interest is 1.80%. The purchaser is financing 80% of the purchase price by obtaining a loan in the amount of $14,400,000.00.
To develop the condominium, the sponsor obtained a construction loan in the amount of $300,000,000.00. The loan was recorded on August 30, 2023. The Sponsor paid a mortgage recording tax of $7,650,000.00 and $6,800,000.00 is eligible for a tax credit.
The New York Mortgage Tax for properties that are $500,000.00 or more is 2.175% of the mortgage principal. The lender will pay 0.25%. Thus, the purchaser is responsible for paying 1.925% of the mortgage principal at closing. The purchaser would pay $277,200.00.
If the closing of the condominium unit occurs within two years of August 30, 2023, the date the sponsor’s loan was recorded, the Sponsor will be entitled to receive a mortgage recording tax credit from the purchaser in the amount of $122,400.00 and the purchaser would be responsible for paying the remaining portion of the tax, $154,800.00.
In conclusion, a developer of a new construction condominium should consider negotiating a mortgage tax credit for the benefit of the developer in contracts of sale with purchasers of units bought within in two years of the developer’s construction or blanket mortgage being recorded.