Our eight-unit condominium (each unit is a two-family semi-attached house with its own 12.5% interest in the shared common elements/yards) wants to terminate the condominium declaration entirely. Under our plan, all eight owners would first become tenants-in-common in the whole property, then each owner would receive a deed from the other seven conveying their combined 87.5% share of that owner's home-and-yard, so each owner ends up owning 100% of just their own unit and yard outright (no more condo regime). No money changes hands since everyone's share is roughly equal in value. Will this termination-and-partition trigger New York's Real Estate Transfer Tax or Real Property Transfer Gains Tax? And if the gains tax applies, is each owner's 'consideration' measured on the increase in their property's value, and do all eight owners' shares get combined to see if we cross the $1 million threshold?

Plain-English summary

The Board of Managers of Powell's Cove View Condominium -- an eight-unit condominium (each unit a two-family, semi-attached house) established more than ten years earlier -- asked the Department about the tax consequences of dissolving the condominium regime entirely. Each unit owner held a deed conveying a condominium unit plus a 12.5% interest in the common elements, which functionally gave each owner the exclusive, perpetual right to use not just their unit but also the yard immediately surrounding it (as a "limited common element"). Except for shared repairs, insurance, and utilities, each owner's rights to their home and yard were essentially indistinguishable from outright fee ownership already. The board believed terminating the condominium declaration -- removing the condo regime's remaining benefits and burdens -- would increase each owner's individual property value (then roughly $150,000-$200,000 per unit).

The two-step plan. First, all eight owners would unanimously execute a declaration terminating the condominium regime, after which they'd hold the whole property as tenants-in-common. Second, the owners would execute deeds among themselves: for each unit, the other seven owners would deed their combined 87.5% collective interest in that unit's home-and-yard to the one owner who actually occupied it (e.g., owners 2 through 8 would deed their 87.5% share of owner 1's home/yard to owner 1). At the end, each owner would hold 100% fee title to exactly the unit and yard they already occupied and exclusively used -- with the square footage and value of each owner's portion treated as approximately equal under the plan.

Step one is fully exempt. The Department held the termination conveyance -- moving from condominium ownership to tenant-in-common ownership -- was exempt from the transfer tax under TWO independent grounds: the mere-change-of-form exemption (because the owners' beneficial ownership interests didn't actually change, just the legal structure holding them) and, separately, the dedicated statutory exemption for a "deed of partition." The same transaction was likewise exempt from the gains tax as a mere change of form.

Step two can be taxable. The second step -- each owner's exchange of their now-tenant-in-common interests to consolidate ownership -- is different: it's a transfer of real property subject to the gains tax (exempt only "to the extent" it too qualifies as a mere change of form). For calculating whether the $1 million gains-tax threshold applies, the Department confirmed that the consideration paid to EACH owner must be aggregated with the consideration paid to all the OTHER owners in the same transaction -- and only once that combined total hits $1 million does the tax kick in, at which point each individual owner is separately taxed based on what they personally received, minus their own original purchase price. Consideration for both taxes is measured as the fair market value of the interest each owner actually receives -- though the Department noted the termination conveyance itself (step one) isn't subject to transfer tax regardless of how consideration is measured, since it's independently exempt on the two grounds above.

What this means for you

Condominium boards and unit owners considering dissolving a condo regime

Terminating a condominium declaration and converting to tenant-in-common ownership is a clean, tax-exempt "mere change of form" -- doubly protected by both the general mere-change exemption AND the dedicated deed-of-partition exemption. But if your plan includes a SECOND step where owners then trade tenant-in-common shares to consolidate into individual fee ownership of their specific unit, that second step is a separate transaction that can trigger gains-tax exposure (for pre-1996 transactions) depending on the values involved.

Real estate attorneys structuring condominium de-conversions

Structure and document the transaction as two analytically distinct steps -- the termination/partition conveyance (fully exempt) and the follow-on interest exchange among owners (potentially taxable) -- since the Department analyzed them completely differently. Aggregate consideration across ALL participating owners when checking against the $1 million gains-tax threshold, not just any single owner's individual received value.

Accountants and tax professionals reviewing older condominium termination transactions

The Real Property Transfer Gains Tax discussed in this ruling was repealed for transfers occurring on or after June 15, 1996 and no longer applies to new transactions -- but the underlying deed-of-partition exemption analysis remains directly relevant for the still-active Real Estate Transfer Tax.

Common questions

Q: Does dissolving a condominium and converting to tenant-in-common ownership trigger New York transfer tax?
A: No -- that step is exempt on two independent grounds: it's a mere change of form (no change in beneficial ownership) and it separately qualifies for the dedicated statutory exemption for a deed of partition.

Q: What about the follow-on step where owners trade shares to each end up owning their own unit outright?
A: That's analyzed separately, and can be subject to gains tax (for pre-1996 transactions), exempt only to the extent it also qualifies as a mere change of form.

Q: If multiple owners each receive property in the same transaction, do we look at each owner's value individually against the $1 million gains-tax threshold, or add them all together?
A: They're aggregated -- the consideration paid to each transferor must be combined with what all the other transferors received to determine whether the $1 million threshold is crossed; only after that, each owner is taxed individually based on what they personally received.

Q: Is the Real Property Transfer Gains Tax discussed in this ruling still relevant today?
A: No -- it was repealed for transfers occurring on or after June 15, 1996 and does not apply to current transactions. The deed-of-partition exemption analysis for the Real Estate Transfer Tax remains current, though.

Citations and references

Statutes and regulations:

• Section 1401(d) of the Tax Law (definition of "consideration")
• Section 1401(e) of the Tax Law (definition of "conveyance" -- includes a conveyance upon liquidation or by tenants-in-common pursuant to a partition)
• Section 1402 of the Tax Law (RETT on conveyances over $500 consideration)
• Section 1405(a)(6) of the Tax Law (mere-change-of-form exemption)
• Section 1405(a)(7) of the Tax Law and 20 NYCRR 575.9(c)(7) (deed-of-partition exemption)
• 20 NYCRR 575.10(b) (mere-change exemption applies to corporation-to-shareholder tenant-in-common conveyances in the same pro rata share)
• Section 1440.1 of the Tax Law (gains tax definition of "consideration")
• Section 1440.7 of the Tax Law (gains tax definition of "transfer of real property")
• Sections 1441, 1443.1 of the Tax Law (gains tax on transfers of $1 million+; repealed for transfers on/after June 15, 1996)
• Section 1443(5) of the Tax Law (mere-change-of-form exemption from the gains tax)
• 20 NYCRR 590.43(d) (aggregation of consideration among multiple transferors of one parcel)
• 20 NYCRR 590.50(a) (mere-change exemption for corporation-to-shareholder tenant-in-common distributions)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a93_8r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93 (8)R
Real Estate Transfer Tax
Real Property
Transfer Gains Tax
June 14, 1993

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M921231A

On December 31, 1992, a Petition for Advisory 0pinion was received from Board of
Managers of Powell's Cove View Condominium, c/o George Nassif, 3-05 127th Street, College
Point, New York 11356.
The issues raised by Petitioner, Board of Managers of Powell's Cove View Condominium,
are:
1.

Whether the termination of a condominium declaration pursuant to a plan that
provides for the partition, without consideration, of the real property subject to the
condominium declaration so that each unit owner acquires a 100% interest in that
portion of the real property which consists of the condominium unit and the limited
common elements appurtenant thereto, is exempt from the Real Estate Transfer Tax
(hereinafter the transfer tax") and the Real Property Transfer Gains Tax (hereinafter
the "gains tax").

2.

Whether the consideration received by each owner for purposes of the transfer tax
and the gains tax is computed on the increase in the value of each owner's interest
after the termination of the condominium declaration over the value prior to the
termination if issue "1" is subject to transfer tax and gains tax.

3.

Whether the "consideration" received by each owner must be aggregated for the
purpose of computing the gains tax.

Petitioner is the Board of Managers of a condominium consisting of eight units, each of
which is comprised of a two-family, semi-attached house. The condominium regime has been
established for more than ten years. Each unit owner received a deed which conveyed to him a
condominium unit and a 12.5% interest in the common elements. As a result, each owner has the
exclusive and perpetual right to use not only his own unit, but also to use exclusively as a limited
common element the portion of the real property upon which the unit is located, that is the portion
that comprises the yard immediately surrounding his unit. The portion of the real property
exclusively used by each owner is approximately equal in both value and square footage, to 12.5%
of the total real property. Except for certain commonly shared repairs, insurance and utility charges,
each unit owner's rights to his or her home and yard are indistinguishable from those of a fee owner.
Some of the units are owner-occupied, and some are not. Each unit is mortgaged.
The present market value of each unit and its 12.5% share of the common elements may be
$150,000 to $200,000, for a total value of $1,200,000 to $1,600,000. It is believed that termination

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of the condominium declaration, and the resulting removal of the benefits and burdens that the
condominium declaration places on each unit owner, would result in an increase in the market value
of each owner's home.
Petitioner contemplates that all owners would enter into an agreement calling for them to
execute a unanimous declaration terminating the condominium declaration. Following the
termination, the owners would then hold title to the real property as tenants-in-common. Next, the
owners would execute a deed to each owner conveying that portion of the real property now
occupied by the owner's home and the yard he is exclusively entitled to use (e.g., owners 2 through
8 would execute a deed to owner 1 conveying their 87.5% interest in that portion of the real property
now occupied by owner l's home and yard, etc.). The square footage of each yard and the market
value of all 8 units is approximately equal and would be treated under the agreement as if it were
equal.
At the completion of the contemplated transaction, each owner will continue to be the fee
owner of his or her condominium unit as defined in the Declaration of Condominium and will
acquire the outstanding 87.5% interest in those common elements as defined in the Declaration of
Condominium that he or she does not already own and that are reserved for his or her exclusive use,
including the outstanding 87.5% of the front and rear yards adjacent to, and the exterior walls and
the roof surrounding his or her unit.
In accordance with Section 1402 of the Tax Law, a transfer tax is imposed on each
conveyance of real property or interest therein at the time that the instrument effecting the
conveyance is delivered by a grantor to a grantee when the consideration for the conveyance exceeds
five hundred dollars.
Section 1401(e) of the Tax Law provides, in pertinent part, that the term "conveyance" means
the transfer or transfers of any interest in real property by any method. This would include a
conveyance upon liquidation or a conveyance of real property by tenants-in-common pursuant to a
partition.
Section 1401(d) of the Tax Law provides in part, that the term "consideration" is defined to
mean the price actually paid or required to be paid for the real property or interest therein...whether
or not expressed in a deed and whether paid or required to be paid by money, property, or any other
thing of value.
Section 1405 of the Tax Law provides, in part, as follows:
Sec. 1405. Exemptions.- - (a) The following shall be exempt from payment
of the real estate transfer tax:
*

*

*

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6. Conveyances to effectuate a mere change of identity or form of ownership
   or organization where there is no change in beneficial ownership, other than
   conveyances to a cooperative housing corporation of the real property comprising the
   cooperative dwelling or dwellings;
7. Conveyances which consist of a deed of partition;
   Section 575.9 of the Transfer Tax Regulations provides, in part, as follows:
   575.9 Exemptions and non-taxable transactions. [Tax Law, §1405]
   (a) Certain governmental organizations or entities are exempt from the payment of
   the real estate transfer tax. In addition, there are certain types of transactions to
   which this tax does not apply.
   *

*

*

(7) conveyances which consist of a deed of partition.
Section 575.10 of the Transfer Tax Regulations provides, in part, as follows:
575.10 Mere change in identity. [Tax Law, § 1405(b)(6)] To the extent that
a conveyance effectuates a mere change of identity or form or ownership or
organization and there is no change in beneficial ownership, the real estate transfer
tax does not apply. Examples of transactions where the issue of change in beneficial
ownership would arise include the following:
*

*

*

(b) the conveyance by a corporation to its shareholders who will hold the real
property as tenants-in-common in the same pro rata share as they own the
corporation. Such conveyance is not taxable as there is no change in beneficial
ownership...
Moreover, the gains tax is a 10% tax on the transfer of an interest in real property where the
property is located in New York State and where the consideration received for the transfer is $1
million dollars or more.
Section 1440.7 of the Tax Law defines the term "transfer of real property", in part, to mean
the transfer or transfers of any interest in real by any method. This would include a transfer upon
liquidation or a transfer of real property by tenants-in-common pursuant to a partition.

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Section 1440.1 of the Tax Law defines the term "consideration", in pertinent part, to mean
the price paid or required to be paid for real property or any interest therein, less any customary
brokerage fees related to the transfer if paid by the transferor...whether expressed in a deed and
whether paid or required to be paid by money, property, or any other thing of value.
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:
*

*

*

5. If a transfer of real property, however effected, consists of a mere change
   of identity or form of ownership or organization, where there is no change in
   beneficial interest.
   Section 590.43 of the Gains Tax Regulations provides, in part, as follows:
   590.43 Aggregation of partial or successive transfers of real property.
   [Tax Law, § 1440(7)]
   Question: How is the aggregation clause of section 1440(7) of the Tax Law,
   which states in part:
   "... Transfer of real property shall also include partial or successive
   transfers, unless the transferor or transferors furnish a sworn
   statement that such transfers are not pursuant to an agreement or plan
   to effectuate by partial or successive transfers a transfer which would
   otherwise be included in the coverage of this article, and the transfer
   of real property by tenants in common, joint tenants or tenants by the
   entirety, provided that the subdividing of real property and the sale of
   such subdivided parcels improved with residences to transferees for
   use as their residences, other than transfers pursuant to a cooperative
   or condominium plan, shall not be deemed a single transfer of real
   property."
   applied in the case of:
   *

*

*

(d) Several transferors, owning one parcel of land either as joint tenants,
tenants in common, or as tenants by the entirety, one transferee?

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Answer: The statute specifically requires that the consideration paid to each
such transferor be aggregated with the consideration paid to the other transferors in
determining whether the consideration is $1 million or more. Once the million-dollar
threshold is met, each transferor is liable for payment of tax based on the
consideration he receives, less his original purchase price for the property.
Section 590.50(a) of the Gains Tax Regulations provides, in part, as follows:
590.50 Mere change of identity. [Tax Law, § 1443(5)]
(a) Question: Section 1443(5) of the Tax Law exempts a transfer from the
gains tax to the extent it "consists of a mere change of identity or form of ownership
or organization, where there is no change in beneficial interest." Does this exempt:
*

*

*

(3) The transfer of real property by a corporation to its shareholders, who will
hold the real property as tenants-in-common in the same pro rata share as they own
the corporation?
Answer: Yes. This is a mere change of identity or form of ownership or
organization. The shareholders will have a carry-over original purchase price in the
real property.
With respect to issue "1", pursuant to Sections 1401(e) and 1405(a)(6) of the Tax Law and
Section 575.10 of the Transfer Tax Regulations the conveyance by Petitioner of the common areas
to the owners resulting from the termination of the condominium declaration will not be subject to
transfer tax since the conveyance of the property to the owners as tenants-in-common is totally
exempt as a mere change of identity or form of ownership or organization where there is no change
in beneficial ownership. Furthermore, the conveyances resulting from the pro rata partition of the
real property is exempt from transfer tax pursuant to Section 1405(a)(7) of the Tax Law and Section
575.9(c)(7) of the Transfer Tax Regulations.
As for the gains tax consequences, pursuant to Sections 1440.7 and 1443.5 of the Tax Law
and Section 590.50 of the Gains Tax Regulations the transfer of real property by Petitioner of the
common areas to the owners resulting from the termination of the condominium declaration will not
be subject to gains tax since the transfer of the real property to the owners as tenants-in-common is
totally exempt as a mere change of identity or form of ownership or organization where there is no
change in beneficial interest. However, the subsequent transfer by the owners of their tenants-in­
common interests are transfers subject to gains tax. Such transfers, however, would be exempt to the

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extent that the transfers result in a mere change of identity or form of ownership with no change in
beneficial interest.
Concerning issue "2", in accordance with Sections 1401(d) and 1440.1 of the Tax Law, the
consideration for the conveyance and transfer of an individual owner's tenant-in-common interest
for both transfer tax and gains tax purposes respectively, is equal to the fair market value of the
interest in real property received by each owner as a result of the conveyance and transfer. It is noted,
however, that the conveyance, is not subject to transfer tax.
As for issue "3", pursuant to Section 590.43(d) of the Gains Tax Regulations, the
consideration paid to each owner for their interest in the real property must be aggregated with the
consideration paid to the other owners for their interests in determining whether the consideration
for the transfer is $1 million dollars or more. However, once the million-dollar threshold is met, each
owner is liable for payment of the gains tax based on the consideration he receives, less his original
purchase price for the property.

DATED: June 14, 1993

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

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