I bought two adjacent properties across the road from each other -- one a $2 million house, the other a $450,000 lot I consider vacant land bought as a separate investment -- using two separate deeds and separate contracts on the same day. Do I owe New York's additional 1% 'mansion tax' only on the $2 million house, or do the two purchase prices get combined?

Plain-English summary

A buyer purchased two parcels of land on the same day, from the same seller, using two separate deeds and two separate Residential Contracts of Sale. Parcel A, improved with a single-family house, cost $2 million. Parcel B, across a two-lane road from Parcel A and described in the petition as "vacant land," cost $450,000 — though a Residential Contract of Sale and aerial photos showed it was actually improved with a two-car garage located near the road. The two purchase contracts were cross-defaulted: a default on either contract counted as a default on both, and closing on Parcel A was contingent on closing on Parcel B. The buyer argued the purchases were unrelated — Parcel B was bought purely as an investment in a buildable lot — and paid New York's additional Real Estate Transfer Tax (the 1% "mansion tax" under Tax Law § 1402-a, which applies when consideration for a residential conveyance is $1 million or more) only on Parcel A's $2 million.

The Department disagreed. Tax Law § 1402-a(a) imposes the additional 1% tax on conveyances of "residential real property" — defined to include not just the house itself but abutting land and ancillary structures used in conjunction with it — when the consideration for the entire conveyance is $1 million or more. Because the additional tax's legal framework largely borrows from the former Real Property Transfer Gains Tax (Article 31-B, repealed 1996), the Department applied that gains-tax body of law, including 20 NYCRR § 590.42 (regulation providing that separate deeds for contiguous or adjacent properties conveyed by one seller to one buyer are treated as a single transfer if the properties are used for a common or related purpose) and prior Tax Appeals Tribunal decisions (Matter of Iveli and Signund; Matter of Calandra) holding that properties separated only by a public road are still "adjacent," and that a road doesn't break the "single economic unit" analysis.

The Department also relied on Matter of Michael and Frances Sacks (Tax Appeals Tribunal, 2011), where a married couple split the purchase of a single connected apartment into two contracts, each under $1 million, to try to avoid the additional tax — the Tribunal held that "conveyance" under the RETT statute isn't defined by the number of instruments used, and required "substance over form with emphasis on economic reality," aggregating the considerations.

Applying that framework here: Parcels A and B were directly across a two-lane road from each other (making them contiguous/adjacent under the gains-tax case law), and the garage on Parcel B appeared to serve the house on Parcel A, showing the properties were used in conjunction with each other for a common purpose — despite the separate deeds and the petitioner's "unrelated purchase" characterization. The cross-default clause between the two purchase contracts reinforced that the deal was, in substance, a single transaction. The Department concluded the two parcels were in substance a transfer of a single property, so the $450,000 paid for Parcel B had to be aggregated with the $2 million paid for Parcel A — bringing the combined consideration well over the $1 million threshold and subjecting the whole amount to the additional tax.

What this means for you

Splitting a purchase into multiple deeds doesn't avoid the $1 million additional-tax threshold

If you're buying what is, in substance, one residential property — even if structured as separate parcels, separate deeds, or separate contracts — expect the Department to aggregate the total consideration for purposes of the 1% additional RETT if the properties are contiguous/adjacent and used for a common or related purpose.

A road between two parcels does not defeat "adjacency"

Properties separated only by a public street, highway, or walkway are still treated as adjacent under the case law this ruling relies on (Matter of Calandra; Matter of Iveli and Signund) — physical separation by a road is not, by itself, enough to treat two purchases as unrelated.

Cross-default and closing-contingency clauses are strong evidence the deal is really one transaction

Contract terms that tie the two purchases together — like making a default on one contract a default on both, or making closing on one parcel contingent on closing the other — signal to the Department that the "separate" purchases are, in substance, a single economic transaction subject to aggregation.

"Vacant land" labeling doesn't control if the parcel actually has structures serving the main residence

Here, a garage that the petitioner described as being on vacant Parcel B (but which functionally served the house on Parcel A) was treated as part of the residential use pattern connecting the two parcels — the Department looks past how a party characterizes a parcel to its actual use.

Common questions

Q: If I buy a house and an adjacent vacant lot on the same day with two separate deeds, are the purchase prices automatically combined for the additional tax?
A: Not automatically, but they will be aggregated if the parcels are contiguous or adjacent (even if separated only by a road) AND used for a common or related purpose — which the Department will assess from the actual facts, not just the deed structure.

Q: Does being separated by a public road mean two parcels are "unrelated" for this purpose?
A: No. Under the case law applied here (interpreting the related former gains tax), properties separated only by a public street, highway, or walkway are still considered adjacent.

Q: What kind of evidence pushed the Department toward aggregating these two purchases?
A: The parcels' physical adjacency across the road, the garage on the "vacant" parcel functionally serving the main house, and contract terms (cross-default, closing contingency) tying the two purchases together as a single economic transaction.

Citations and references

Statutes, guidance, and cases:

• Tax Law § 1402
• Tax Law § 1402-a(a)
• 20 NYCRR § 590.42
• TSB-M-86(4)R
• Matter of Iveli and Signund (N.Y. Tax Appeals Tribunal, Feb. 23, 1988)
• Matter of Calandra (N.Y. Tax Appeals Tribunal, Sept. 29, 1988)
• Matter of Michael and Frances Sacks (N.Y. Tax Appeals Tribunal, Mar. 10, 2011)
• Matter of Avon Products v. State Tax Commn., 90 A.D.2d 393 (1982)
• United Housing Found. v. Forman, 421 U.S. 837 (1975)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_2016.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/misc/a16_1m.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel

TSB-A-16(1)M
Real Estate Transfer Tax
April 25, 2016

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M141215A

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTEDREDACTEDREDACTEDREDACTEDREDACTED. Petitioner asks whether the
additional real estate transfer tax, imposed by section 1402-a of the Tax Law (the “additional
tax”), applies to the conveyance of a parcel of vacant land, for which the consideration was less
than $1 million, when, on the same date, Petitioner also bought a nearby separate parcel
improved by a residence, for which the consideration was more than $1 million.
We conclude that, under the available facts, the consideration for the conveyance of the
parcel of vacant land must be aggregated with the consideration for the parcel improved by the
residence for purposes of determining the amount of the additional tax due.
Facts
Petitioner bought two separate parcels of land separated by a road owned by a
neighborhood association. The properties were directly across the road from each other. One
property (“Parcel A”) was improved by a single-family residence. The other property (“Parcel
B”) was described in the Petition as vacant land, but a Residential Contract of Sale on Parcel B
indicated that it was improved by a two-car garage. Moreover, aerial photographs of the parcel
confirm that Parcel B is improved with a two-car garage near the road. The consideration paid
for Parcel A was $2 million. The consideration paid for Parcel B was $450,000.
Petitioner executed a separate Residential Contract of Sale for each property. The
contract for Parcel A provided that the purchaser had entered into a contract for Parcel B and that
the purchaser’s obligation to close on Parcel A was contingent on the purchaser’s closing on
Parcel B. The contract for Parcel A also contained language that a default by either party under
either the contract for Parcel A or for Parcel B would be deemed a default under both contracts.
The seller, an individual, executed a separate deed for each property on the same day. Petitioner
claims that the purchases of the two properties were unrelated, and that Parcel B was acquired
solely as an investment in a buildable lot. For that reason, Petitioner paid the additional tax only
on the consideration attributable to Parcel A.
Analysis
The issue raised in the Petition is whether the consideration paid for the transfer of two
separate properties by two separate deeds should be viewed separately or aggregated for
purposes of calculating the additional tax. In particular, the question is whether the consideration

-2-

TSB-A-16(1)M
Real Estate Transfer Tax
April 25, 2016

for the purchase of Parcel B should be combined with the consideration for Parcel A, for
purposes of calculating the additional tax due.
Tax Law § 1402 imposes a tax on each conveyance of real property or interest therein
when the consideration exceeds $500 at the rate of $2 for each $500 or fractional part thereof.
Tax Law § 1402-a(a) imposes an additional tax on each conveyance of residential real property
or an interest therein, when the consideration for the entire conveyance is $1 million or more.
For purposes of this section, residential real property includes any premises that are or may be
used in whole or in part as a personal residence. The rate of such tax is one percent of the
consideration or part thereof attributable to the residential real property.
The Department of Taxation and Finance’s Publication 577, FAQs Regarding the
Additional Tax on Transfer of Residential Real Property for $1 Million or More, addresses this
issue in the examples given to answer Question 10 and Question 11.
Q. 10: When a one-, two-, or three-family house is sold, does all of the abutting land
qualify as residential real property?
A. Residential real property includes the land on which the house is located and the land
abutting the house unless the abutting land is used for a nonresidential purpose.
“Example: Grantor A enters into a contract to sell a parcel improved by a onefamily house to Grantee B for $900,000. Simultaneously, Grantor A contracts
with Grantee B to sell an adjacent parcel of vacant land for $300,000. The
timing and terms of the contracts indicate that the conveyances are related.
Prior to the conveyance, the abutting parcel was kept vacant. Both parcels are
used in conjunction with each other and are considered residential real property.
Accordingly, the consideration for the entire conveyance of $1.2 million is
subject to the additional tax. . . . .
Q. 11: When are ancillary structures considered part of the residential real property?
A. 11: Ancillary structures are considered part of the residential real property when the
structures are used in conjunction with, or are clearly related to, the main residential structure.
Example: A 20-acre parcel is divided into three tax lots for real property tax
purposes. Lot 1 contains the main house and a detached three-car garage
located on one acre of land. Lot 2 contains a guest cottage located on half an
acre of land some distance from the main house. Lot 3 is vacant land. The
entire parcel is conveyed to one grantee for $2 million. The lot with the main
house and the garage is valued at $995,000, the guest cottage is valued at
$405,000, and the abutting land is valued at $600,000. None of the lots are used
for anything other than residential purposes and the ancillary structures and
abutting land are all used in conjunction with each other. Therefore, since the

-3-

TSB-A-16(1)M
Real Estate Transfer Tax
April 25, 2016

consideration received for all the structures and abutting land is $1 million or
more, the conveyance is subject to the additional tax. . . . .
Many of the definitions and administrative legal interpretations pertaining to Article 31 of
the Tax Law are conformed to the former Article 31-B, Tax on Gains Derived from Certain Real
Property Transfers (“the gains tax”), which was adopted in 1983 and repealed in 1996. The
gains tax imposed a 10 percent tax on the gain derived from a transfer of real property if the
consideration for the conveyance was $1 million or more. The gains tax and the RETT
historically have had many elements in common, and the Department’s policies on similar issues
have been conformed. Thus, the laws and regulations of the gains tax may inform legal
questions presented in the context of the additional tax.
Real Estate Transfer Gains Tax Regulation 20 NYCRR § 590.42 provided that separate
deed transfers of contiguous or adjacent properties by one transferor to one transferee are to be
regarded as a single transfer of real property for purposes of calculating the threshold for the
gains tax, if the properties are used for a common or related purpose.
TSB-M-86(4)R summarized gains tax opinion letters issued by the Department during the
previous year. One such letter stated: “Properties are considered contiguous or adjacent when
the properties border each other, or they are in close proximity, and they are not completely
separated by property owned by another party. If the properties are nearby and are separated
only by a public street, highway, or walkway, the properties are considered adjacent, (i.e., a
building and parking lot across the street from each other).”
This interpretation was upheld in Matter of Iveli and Signund (Tax Appeals Tribunal,
February 23, 1988) and in Matter of Calandra, Tax Appeals Tribunal (Sept. 29, 1988). In
Matter of Calandra, the transfer of two properties that were directly across from each other and
separated only by a two-lane county road and its shoulders were treated as a single transfer. The
Tribunal pointed out that the public way did not hinder intercourse between the two properties or
in any way create a barrier between them that could negate the conclusion that the properties
existed and were transferred as a single economic unit, saying: “Not only do we find that the
instant properties were adjacent to each other within the meaning of the regulation [§ 590.42],
we find that to treat the instant properties as a single transfer, if used for a common or related
purpose, [is] an appropriate application of the gains tax. In that case, both properties were used
as rental property for office space and warehousing, and they were managed by a single owner.
Thus, the Tribunal concluded that the properties were used for a common or related purpose and
should be aggregated for purposes of the gains tax.
In the Matter of Michael and Frances Sacks, Tax Appeals Tribunal (March 10, 2011), the
Tribunal noted that “conveyance” under the Real Estate Transfer Tax means the transfer or
transfers of any interest in real property and opined that the number of conveyances is not
determined by the quantity of instruments used to transfer real property interests. In this case,
the Petitioners, a married couple, bought two adjacent apartment units that were connected by a
passage way; the two units were listed as one apartment with an asking price of more than $1

TSB-A-16(1)M
Real Estate Transfer Tax
April 25, 2016

-4-

million. Each spouse entered into a purchase and sale contract for one of the units, each for a
purchase price below $1 million. Each spouse filed a separate transfer tax return after the
respective closings. Upon audit, the Department of Taxation and Finance determined that the
conveyances to the Petitioners were subject to the additional tax and issued a Notice of
Determination. The Tribunal held that the entire conveyance of real property must be analyzed
“to search for substance over form with emphasis on economic reality” (Matter of Avon Products
v. State Tax Commn., 90 AD2d 393, 395 [1982] citing United Housing Found v. Forman, 421
US 837 [1975]). The Tribunal said: “While the formal structure reflects two contracts for two
separate apartments, the substance amounted to the transfer of an interest in a single and
indivisible apartment. We hold that in order to accurately reflect the conveyance and actual
purchase price, the considerations must be aggregated.”
Like Matter of Michael and Frances Sacks, this Petitioner’s purchase of the two
properties was in substance the transfer of a single property. The tax map for the town of Shelter
Island shows that Parcel A and Parcel B are located directly across a 2-lane road from each other
and, therefore, they are contiguous or adjacent. The properties also were used in conjunction
with each other or for a common or related purpose. Real estate listings of the Parcel A
represent that the property has a detached two-car garage. Aerial views of the house do not show
a garage on Parcel A, but they do show a two-car garage near the road on Parcel B. Although the
properties were conveyed by separate deeds, the Residential Contract for Sale for Parcel A
contained a cross-purchase clause providing that a default by Petitioner on either the contract for
Parcel A or the contract for Parcel B would be deemed a default under both contracts. Thus, we
conclude that the parcels, which were contiguous or adjacent and used for a common purpose,
were in substance a transfer of an interest in a single property. Accordingly, the consideration
for Petitioner’s purchase of Parcel B must be aggregated with the consideration for his purchase
of Parcel A to determine the amount of consideration subject to the additional tax.

DATED: April 25, 2016
/S/
DEBORAH R. LIEBMAN
Deputy Counsel

NOTE:

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.