I'm buying a cooperative apartment unit for over $1 million that has been used exclusively as doctors' offices for at least 40 years, is configured with exam rooms instead of a kitchen or residential bathroom, and whose certificate of occupancy only permits professional-office use -- even though I plan to convert it to a residence after closing. Do I owe New York's 1% 'mansion tax' (the additional residential conveyance tax) on this purchase?

Plain-English summary

Petitioner purchased the cooperative corporation shares and proprietary lease for a unit at 1192 Park Avenue in Manhattan for a purchase price exceeding $1 million. The sellers were two physicians who had used the unit exclusively as medical offices -- not as a residence -- and the unit had been used only as medical offices for at least 40 years. The unit's configuration reflected that use: it was laid out as offices and examination rooms, with no kitchen facilities and no residential bathroom facilities, and the building's certificate of occupancy permitted the unit to be occupied only as professional offices. Converting the unit to residential use would require substantial physical alterations and an amendment to the certificate of occupancy. The sale contract specifically disclaimed any seller representation about the unit's permitted use. During a five-day due-diligence period, Petitioner obtained written confirmation from the Department of Buildings borough commissioner that the unit could be converted to residential use under applicable zoning without violating floor/area ratio limits -- and, relying on that confirmation, went through with the purchase and proceeded with converting the unit to residential use afterward.

Why the mansion tax doesn't apply. Tax Law §1402-a imposes an additional 1% tax on conveyances of "residential real property" (including cooperative apartment units) where the consideration is $1 million or more, defining residential real property as any premises "that is or may be used in whole or in part as a personal residence." The Department pointed to its own Example 5 under §575.3(b) of the RETT regulations: a two-family house sold for $1 million as a residence is subject to the mansion tax even though the buyer intends to convert it to offices (because it "may be used" residentially at the time of THAT conveyance) -- but if that same property is later sold again after being converted to actual office use, no mansion tax applies on the later sale, because at that later conveyance the property is no longer residential. Applying the same time-of-conveyance principle here, the Department held the mansion tax does NOT apply to Petitioner's purchase: at the moment of conveyance, the unit had not yet been converted to residential use and, given its physical configuration and certificate of occupancy, could only be used for nonresidential occupancy -- Petitioner's subsequent, unrelated conversion doesn't change the tax analysis of the purchase itself.

What this means for you

The mansion tax looks at what the property actually is (and can legally be used as) at the moment of sale, not what either party plans to do with it afterward

If you're buying commercial, medical, or office space that happens to be residential-zoning-eligible or that you intend to convert, the mansion tax shouldn't apply as long as the property is genuinely nonresidential -- in configuration, use history, AND certificate of occupancy -- at closing.

The reverse is equally true: converting residential property to commercial use right after a residential sale doesn't retroactively avoid the tax on THAT sale

The Department's own example makes clear the mansion tax attaches based on the property's status at the time of the taxed conveyance -- a buyer's post-closing conversion plans (in either direction) don't change what was true when the deed changed hands.

Confirming a property's actual physical configuration and certificate-of-occupancy status matters more than what a seller might informally represent about future use

Here, the sellers explicitly disclaimed any representation about permitted use, but the Department's ruling didn't hinge on seller representations -- it hinged on the documented physical facts (medical-office layout, no kitchen/residential bathroom, C of O restricted to professional offices) that made the unit objectively nonresidential at the time of sale.

Common questions

Q: If I buy a $1.2 million commercial or office condo/co-op unit that I plan to convert into my personal residence, do I owe the mansion tax at closing?
A: Not if the unit is genuinely nonresidential at the time of purchase -- configured, used, and certified (via certificate of occupancy) for nonresidential purposes -- even though you intend to convert it afterward.

Q: Does obtaining pre-closing confirmation that a zoning conversion is possible change the analysis?
A: No -- confirming that a FUTURE conversion is legally possible doesn't make the property residential NOW; the tax turns on the property's actual status at the time of the conveyance being taxed.

Q: If I buy a house as a residence and later convert it to office use, do I owe the mansion tax on that original purchase?
A: Yes -- if the property could be used residentially at the time of that purchase, the mansion tax applies to that conveyance regardless of what you do with the property afterward; only a LATER sale, once the property has actually been converted to nonresidential use, would escape the tax.

Citations and references

Statutes, guidance, and case law:

• Section 1402-a of the Tax Law
• Section 575.3(b) Example 5 of the Real Estate Transfer Tax Regulations

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2001.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a01_6r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Tax Policy Analysis
Technical Services Division

TSB-A-01(6)R
Real Estate Transfer Tax
June 1, 2001

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M010430A

On April 30, 2001, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Andrew S. Roffe, 737 Park Avenue, New York, New York (herein referred to as
“Petitioner”).
The issue raised by Petitioner, based on the facts described in this petition is whether
Petitioner is liable for tax under section 1402-a of the Tax Law (the “mansion tax”) upon the
purchase of a nonresidential cooperative unit which (i) has been used as doctors’ offices (and not as
a residence) for decades, (ii) is configured and fixtured as doctors’ offices, and (iii) may not at the
time of transfer be lawfully occupied as a residence under the building’s certificate of occupancy,
notwithstanding that the Petitioner intends to convert the unit to residential use.
Petitioner presented the following facts as the basis for this advisory opinion.
Petitioner contracted for and purchased the cooperative corporation shares and lease
appurtenant to unit 1-D (the “Unit”) at 1192 Park Ave., New York, NY (the “Building”),1 for a
purchase price in excess of $1,000,000. The sellers of the Unit are two physicians (the “Sellers”)
who had used the Unit as medical offices, and not as a residence, for several years. The Unit has
been used only as medical offices for at least 40 years. The certificate of occupancy of the Building
(the “C of O”) permits occupancy of the Unit only as professional offices. The Unit is configured
as offices and examination rooms. It has no kitchen facilities or residential bathroom facilities, nor
does the general layout of the Unit permit residential use. The Unit cannot legally be occupied as
a residence without substantial physical alterations and amendment of the C of O.2 Under the terms
of the contract of sale, the Sellers specifically disclaimed any representation as to the permitted use

1

Unless otherwise indicated, all statements regarding the Unit were valid both at the time of
contract and at the time of closing.
2

New York City Building Code (“Building Code”) §27-217 [C26-121.5]. The Building Code
defines “Habitable Room” (including, inter alia, bedrooms and kitchens) for residential purposes
in terms of minimum dimensions which are not satisfied by the Unit as presently configured (see
§27-751 [C26-1205.7]) and imposes requirements for residential units including, inter alia,
plumbing (see, e.g. §27-901(1) [C26-1600.6(1)], “Required plumbing fixtures”). The Unit as
purchased is in material non-compliance with the Building Code requirements for issuance of a
certificate of occupancy for residential use, and cannot be brought into compliance without
substantial physical alterations and improvements upon application to the Department of
Buildings.

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TSB-A-01(6)R
Real Estate Transfer Tax
June 1, 2001

of the Unit. Petitioner was allowed a 5 day due diligence period to determine whether the Unit could
lawfully be converted to residential use. During that period, Petitioner obtained a written statement
from the Borough Commissioner of the Department of Buildings to the effect that the Unit could be
converted to residential use under applicable zoning law and regulations without violation of
floor/area ratio limits. In reliance upon such statement, Petitioner consummated the purchase and
is presently proceeding with such conversion.
Applicable Law and Regulations
Subdivision (a) of section 1402-a of the Tax Law provides, in part:
In addition to the tax imposed by section fourteen hundred two of this article,
a tax is hereby imposed on each conveyance of residential real property or interest
therein when the consideration for the entire conveyance is one million dollars or
more. For purposes of this section, residential real property shall include any
premises that is or may be used in whole or in part as a personal residence, and shall
include a one, two, or three-family house, an individual condominium unit, or a
cooperative apartment unit. The rate of such tax shall be one percent of the
consideration or part thereof attributable to the residential real property. . . .
Example 5 of subdivision (b) of section 575.3 of the Real Estate Transfer Tax Regulations
provides:
Example 5:

A grantor constructs a two-family house which he then sells
for $1,000,000. The grantee intends to convert the house to
two offices. The grantee is required to pay the additional tax
of $10,000 ($1,000,000 X .01) because the property may be
used as residential real property at the time of conveyance.
After purchasing the property, the grantee does in fact convert
the property to offices. He later sells the property for
$1,200,000. No additional tax is due on the sale because the
property, at the time of the sale, had been converted to offices
and is no longer considered to be residential real property.
(emphasis added)

Conclusions
As supported by Example 5 of subdivision (b) of section 575.3 of the Real Estate Transfer
Tax Regulations, residential real property which has been converted to nonresidential use and may
function only as nonresidential property at the time of conveyance is not subject to the additional
transfer tax under section 1402-a of the Tax Law. Accordingly, in the case of Petitioner the

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TSB-A-01(6)R
Real Estate Transfer Tax
June 1, 2001

additional transfer tax is not applicable, since at the time of conveyance the cooperative unit in
question had not been converted to residential use and could only be used for nonresidential
occupancy.

DATED: June 1, 2001

NOTE:

/s/
Jonathan Pessen
Tax Regulations Specialist III
Technical Services Division

The opinions expressed in Advisory Opinions are
limited to the facts set forth therein.