My clients, a married couple both now in bankruptcy and heading toward divorce, jointly own a 37-acre residential property. My client moved out several months ago due to marital discord, but her husband still lives there. If their bankruptcy trustees sell the property (including to a tax-exempt buyer) for $1.5 million, does the personal residence exemption from New York's Real Property Transfer Gains Tax still apply, given my client's recent absence?

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 It was repealed for any transfer occurring on or after June 15, 1996.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 1992 opinion is preserved here for historical and research value, not as current law.

A married couple jointly owned a personal residence on roughly 30 acres near Rochester, plus a contiguous 7-acre vacant parcel (37 acres total, under two separate tax numbers), none of which had ever been used for business. The wife had lived in the home with her husband from when they acquired it until she moved out several months before this opinion, due to marital discord -- she was preparing to sue for divorce. Her husband continued to live in the home. Both spouses had since filed for bankruptcy, so their bankruptcy estates would be the technical transferors if the property sold. A tax-exempt organization had offered roughly $1.5 million for the home and all 37 acres.

The Department worked through three related questions. First, applying the federal bankruptcy court's holding in In re Jacoby Bender, Inc. (that a debtor isn't exempt from state gains-tax liability just because a bankruptcy trustee handles the sale, and the debtor is deemed the transferor), the Department confirmed the ordinary residence exemption analysis applies to a bankruptcy-trustee sale exactly as it would to a direct sale by the couple. Because the home had been jointly, continuously occupied as the couple's residence, and the additional acreage was never used for business, the full 37 acres qualified for the residence exemption (former § 1443.2, former 20 NYCRR § 590.24(a) confirms the exemption applies even above $1 million; former 20 NYCRR § 590.24(f) extends it to non-business abutting land). Second, the wife's recent, several-month absence due to marital discord didn't change that result, because her husband continued occupying the home throughout and the property remained a joint marital asset the whole time. Third, the fact that the eventual buyer would be a tax-exempt organization made no difference -- the residence exemption is about how the SELLING transferor used the property, not about the buyer's own tax status.

What this means for you

Divorcing or separated spouses selling a jointly-owned marital residence

Under this now-repealed tax, one spouse moving out for a relatively short period due to marital problems -- while the other spouse continued living there -- didn't disqualify the couple from the residence exemption on a later sale, as long as the home remained a genuine joint marital asset throughout.

Bankruptcy attorneys handling trustee sales of a debtor's residence

This opinion confirms the residence exemption survives the mechanics of a bankruptcy sale: even though the bankruptcy ESTATE is the technical transferor and a trustee conducts the sale, the exemption analysis looks through to the debtor's own historical use of the property as their residence.

Real estate attorneys advising on sales to tax-exempt buyers

The opinion is a clean confirmation that a buyer's tax-exempt status is irrelevant to whether the SELLER qualifies for the residence exemption -- the exemption is entirely about the transferor's use of the property, not the transferee's characteristics.

Common questions

Q: Does this residence-exemption-in-bankruptcy rule still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York real estate taxes have their own separate exemption rules for bankruptcy and marital-separation sales.

Q: How long could a spouse be absent from the home before the exemption would be at risk?
A: This opinion doesn't set a bright-line cutoff -- it treated "several months," with the other spouse still in residence and the marriage/divorce still pending, as within the exemption. A related later opinion in this same corpus (involving a spouse who'd moved out 14 years before a sale) reached the OPPOSITE result for that spouse's share, showing the line falls somewhere between a few months and many years, decided on the specific facts.

Q: Why did the bankruptcy trustee's involvement not change the analysis?
A: Because federal bankruptcy law (per In re Jacoby Bender, Inc.) doesn't exempt a debtor from state gains-tax liability, and New York's Department treated the debtor as the transferor regardless of the trustee's role in actually conducting the sale -- so the exemption question still turns on the DEBTOR's historical use of the property.

Q: Can another separated or divorcing couple in bankruptcy rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and this result depended on the specific short duration of the wife's absence and the husband's continued occupancy.

Citations and references

Statutes and regulations:

• former Tax Law § 1443.2 (exemption for premises occupied by the transferor as his residence, limited to the portion actually occupied and used for that purpose)
• former 20 NYCRR § 590.24(a) (the residence sale exemption applies even where consideration exceeds $1 million)
• former 20 NYCRR § 590.24(f) (the residence exemption includes land abutting the dwelling, as long as that land was never used for business purposes)
• In re Jacoby Bender, Inc., 40 B.R. 10, 15 (Bankr. 1984) (a debtor in bankruptcy is not exempt from liability for the New York gains tax under the Federal Bankruptcy Code, and is deemed the transferor for gains-tax purposes)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1992.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a92_8r.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-92(8)-R
Real Property Transfer
Gains Tax
November 3, 1992

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M920922B

On September 22, 1992, a Petition for Advisory Opinion was received from Underberg and
Kessler, 1800 Lincoln First Tower, Rochester, New York 14604.
The issues raised by Petitioner, Underberg and Kessler, are:
1.

Whether the sale of the personal residence of Petitioner's client and her husband by
a bankruptcy trustee would be exempt from the Real Property Transfer Gains Tax
(hereinafter the "gains tax") under Section 590.24 of the Gains Tax Regulations
where the premises were used at all times by Petitioner's client or her husband as a
residence and never used for a business purpose.

2.

Whether the fact that Petitioner's client moved out of the premises during the past six
months due to martial discord would alter the conclusion reached for issue "1" above.

3.

Whether the fact that Petitioner's clients interest in the premises will be transferred
to a tax-exempt organization would alter the conclusion reached for issues "1" and
2" above.

Petitioner's client and her husband own, in joint name, a personal residence on approximately
30 acres of land in the Rochester, New York metropolitan area. Another seven acres of vacant land
with a different tax number is contiguous to the 30 acre parcel. None of the 37 acres abutting the
home ever was used for business purposes. The home was occupied jointly by Petitioner's client and
her husband from the time it was acquired until Petitioner's client vacated the premises several
months ago due to marital discord. Her husband continues to reside in the home. Petitioner's client
is preparing to sue her husband for divorce. Both Petitioner's client and her husband are now in
bankruptcy.
Petitioner's client and her husband have been offered approximately $1.5 million by a tax­
exempt organization for the home and 37 acres. If the offer if accepted and the transfer occurs, the
technical transferors of the premises will be the bankruptcy estates of both Petitioner's client and her
husband.
Section 1443 of the Tax Law provides, in part, as follows:
Sec. 1443. Exemptions.-- A total or partial exemption shall be allowed in the
following cases:
*

*

*

2. 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).

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TSB-A-92(8)-R
Real Property Transfer
Gains Tax
November 3, 1992

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TSB-A-92(8)-R
Real Property Transfer
Gains Tax
November 3, 1992
Section 590.24 of the Gains Tax Regulations provides, in part, as follows:
(a) Question: Is the sale of an individual's personal residence subject to the
gains tax where the consideration received is in excess of $1 million?
Answer: No. Section 1443(2) of the Tax Law specifically exempts from the
gains tax the sale of premises occupied by the transferor exclusively as his residence.
*

*

*

(f) Question: When a residence is sold, does all of the land abutting the
residence qualify for the exemption?
Answer: Yes. A residence includes all the land on which the dwelling is
located and the land abutting the dwelling as long as the abutting land was never used
for business purposes (e.g., farm, rental, etc.). (See section 590.25 of this Part for a
discussion on property used for business.) However, the land alone is not a residence
and thus where part of the land is sold separately, the portion or portions sold without
the dwelling will not qualify for the residential exemption found in section 1443(2)
of the Tax Law.
In Jacoby Bender, Inc., 40 BR 10, 15 (Bkrtcy. 1984) the U.S. Bankruptcy Court held that the
debtor is not exempt from liability for the gains tax under Section 1146(c) of the Federal Bankruptcy
Code.
Concerning issue "1", in accordance with Jacoby Bender, Inc., supra, the debtor in bankruptcy
is deemed to be the transferor for any real property transferred in bankruptcy for purposes of
determining the liability for the gains tax. Section 1443.2 of the Tax Law and Sections 590.24(a) and
590.24(f) of the Gains Tax Regulations provides that the sale of premises occupied by the transferor
exclusively as his residence, including all land on which the dwelling is located and the land abutting
the dwelling as long as the abutting land was never used for business purposes, is not subject to gains
tax. Therefore, pursuant to Section 1443.2 of the Tax Law, Sections 590.24(a) and 590.24(f) of the
Gains Tax Regulations and Jacoby Bender, Inc., supra, the transfer by a bankruptcy trustee of the
personal residence and abutting land of Petitioner's client and her husband would not be subject to
the gains tax.
With respect to issue "2", the opinion reached for issue "1" would still apply to issue "2"
since Petitioner's client's husband continues to occupy the premises during the marital discord,
Petitioner's client has only been out of the premises for a short period of time and the premises
continues to be a joint asset of the marriage.

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TSB-A-92(8)-R
Real Property Transfer
Gains Tax
November 3, 1992

Regarding issue "3", the opinions reached in issues "1" and "2" would not be altered by the
fact that the premises will be transferred to a tax-exempt organization.

DATED: November 3, 1992

/s/
PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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