My late husband's cooperative apartment shares passed under his will into a testamentary trust, of which I'm co-trustee. If the trust now sells the co-op shares, does the personal-residence exemption from New York's Real Property Transfer Gains Tax apply the same way it would if the estate itself were selling?

Plain-English summary

This tax no longer exists. New York's Real Property Transfer Gains Tax (former Article 31-B of the Tax Law) was a 10% tax on the GAIN from transferring New York real property where consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1986 opinion is preserved here for historical and research value, not as current law.

Harry D. Epstein died in 1980, owning 1,100 shares of 720 Park Avenue Corp., a cooperative housing corporation, along with the proprietary lease to a cooperative apartment that was his primary residence. Under his will, those shares passed into his residuary estate and then into one of three separate testamentary trusts. Dasha A. Epstein, co-trustee of that trust (and co-executrix of the estate), asked whether a contemplated sale of the co-op shares by the trust would qualify for the gains tax's personal-residence exemption -- the same exemption that would plainly apply if the estate itself, rather than a downstream trust, were making the sale.

Former Tax Law § 1443.2 exempts a transfer of "premises occupied by the transferor as his residence," and former 20 NYCRR § 590.24(e) confirms that an ESTATE's sale of a decedent's former residence gets that same exemption. But the Department drew a line between the estate and a trust that later received the property from the estate: the exemption isn't automatically inherited along with the asset. Instead, whether the trust's subsequent sale qualifies depends on whether a beneficiary of the TRUST is actually living in the apartment as their own personal residence, rent-free (or without paying rent to the trust or other beneficiaries). If so, the sale is exempt. If no beneficiary occupies it as a residence, or if an occupying beneficiary pays rent to use it, the sale is fully subject to the gains tax (assuming consideration of $1 million or more).

What this means for you

Trustees selling real estate or co-op shares held for an estate beneficiary

Don't assume a decedent's-residence exemption carries over automatically just because the property was the decedent's home before it passed into a trust. What matters at the time of the TRUST's sale is who is occupying the property now, and on what terms.

Estate and trust attorneys planning distributions of a decedent's residence

If preserving the residence exemption on an eventual sale matters, structure the arrangement so a trust beneficiary occupies the property as their own home without paying rent to the trust or the other beneficiaries -- paying rent, or leaving the property vacant or rented to an outsider, forfeits the exemption.

Accountants advising co-op shareholders and their heirs

The exemption inquiry resets at each transfer: an estate's sale of a decedent's home is exempt outright, but once the property moves into a trust, the trust's LATER sale is tested independently against whether a trust beneficiary is using it as a residence at that time.

Common questions

Q: Does this residence-exemption rule for trusts still apply today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Any current transfer tax would apply its own separate rules.

Q: Why doesn't the exemption just carry over from the estate to the trust automatically?
A: The exemption in former Tax Law § 1443.2 is tied to occupancy by "the transferor" -- for the trust's own transfer, the trust (through its beneficiaries) has to independently satisfy that test, rather than relying on the decedent's historical use of the property.

Q: What if the beneficiary living there pays some rent to cover building maintenance costs?
A: The opinion doesn't parse a partial-payment scenario -- it draws the line at whether the occupying beneficiary is "paying rent to the trust or other beneficiaries to use the premises." Any rent payment for the right to occupy would put the sale outside the exemption as described in this ruling.

Q: Can another trustee in a similar situation rely on this exact ruling?
A: No. An Advisory Opinion binds the Department only as to the petitioner and facts presented, and this tax no longer exists in any event.

Citations and references

Statutes and regulations:

• former Tax Law § 1443.2 (exemption for premises occupied by the transferor as a residence)
• former 20 NYCRR § 590.24(e) (confirming the residence exemption applies to a sale of a decedent's residence by the decedent's estate)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1986.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a86_2r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-86 (2) R
Real Property Transfer
Gains Tax
April 28, 1986

STATE OF NEW YORK
STATE TAX COMMISSION
ADVISORY OPINION

PETITION NO. M860307B

On March 7, 1986, a Petition for Advisory Opinion was received from Dasha A. Epstein, 720
Park Avenue, New York, New York 10021.
The issue raised concerns the application of the Real Property Transfer Gains Tax imposed
by Article 31-B of the Tax Law (hereinafter the "Gains Tax") to the following factual situation.
Harry D. Epstein died on July 19, 1980. At the time of his death, Mr. Epstein was the owner
of 1,100 shares of 720 Park Avenue Corp., a cooperative housing corporation, including a
proprietary lease to a cooperative apartment which was used as his primary place of residence.
Under the terms of Mr. Epstein's will, the shares of 720 Park Avenue Corp. became part of
his residuary estate which passed into three separate trusts. One of the trusts under the decedent's
will is the owner of the aforementioned shares and is presently contemplating a sale of the residence.
The Petitioner is the co-trustee of this trust and co-executrix of Mr. Epstein's estate.
With respect to the proposed transfer by the trust, the Petitioner cites Section 1443.2 of the
Tax Law which provides an exemption from the Gains Tax: "If the real property consists of premises
occupied by the transferor as his residence (but only with respect to that portion of the premises
actually occupied and used for such purposes)."
Also, the Petitioner cites Gains Tax Regulations Section 590.24(e) which states as follows:
"Q.

Is the sale of the premises by an estate exempt from the gains tax when the
premises were occupied and used as a residence by the decedent?

A.

Yes. The same rules for determining the applicability of the personal
residence exemption for an individual apply to the sale of the premises by a
decedent's estate." 20 NYCRR 590.24.

It is the contention of the Petitioner that, although the contemplated sale will be by a
testamentary trust which was designated to receive a share of the residue of the decedent's estate, the
sale should be exempt pursuant to Section 1443.2 of the Tax Law and Section 590.24(e) of the Gains
Tax Regulations as cited above in the same manner that the sale would be exempt if it were a sale
by the estate of the decedent.
As cited by the Petitioner, Section 1443.2 of the Tax Law provides an exemption from the
Gains Tax where the real property being transferred consists of premises occupied by the transferor
as his residence. (emphasis added)
RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-86 (2) R
Real Property Transfer
Gains Tax
April 28, 1986
Also, as previously cited by the Petitioner, Gains Tax Regulations Section 590.24(e) provides
an exemption from the Gains Tax in the case of a sale of premises by an estate when the premises
were occupied and used as a residence by the decedent.
However, where there is an actual transfer of a personal residence by an estate of a decedent
to a trust as beneficiary of the estate, the beneficiary of the trust must actually occupy and use the
premises as his or her residence in order for the residential exemption to apply in the case of a
subsequent transfer of the premises by the trust.
Accordingly, if a beneficiary of the trust is currently occupying the premises as a personal
residence, and if the beneficiary is not paying rent to the trust or other beneficiaries to use the
premises, the transfer would be exempt pursuant to Section 1443.2 of the Tax Law. If no beneficiary
is currently occupying the premises as a personal residence or if the beneficiary is paying rent to use
the premises, the sale of the stock in the cooperative housing corporation by the trust would be
subject to the Gains Tax if the consideration received for such transfer is $1 million or more.

DATED: April 10, 1986

s/FRANK J. PUCCIA
Director
Technical Services Bureau

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