Our development is a subdivision run by a homeowners association -- each homeowner holds a deed to their own individual lot, and everyone is automatically a member of the association, which separately owns the common areas (athletic facilities, community center). We're proposing to convert the whole thing to a condominium structure: homeowners who opt in would deed their lot to the condominium (through an escrow agent) in exchange for a condominium unit deed covering that exact same lot, plus a proportional interest in the condo's common elements. The homeowners association would keep existing and keep owning the shared common areas as before. Does converting from lot-deed/HOA ownership to condominium ownership trigger New York's Real Estate Transfer Tax or Real Property Transfer Gains Tax?

Plain-English summary

Vacation Village Homeowners Association, Inc. operated a residential subdivision called Vacation Village in Sullivan County, New York. Under the existing structure, each lot in the development had been deeded individually to its homeowner (recorded with the county clerk), and every homeowner automatically became a member of the association under a Declaration of Covenants, Restrictions, Easements, Charges and Liens. The association separately held title to the development's common facilities -- athletic facilities and the community center -- funded by member assessments.

The proposed conversion. The association proposed converting the development's ownership structure to a condominium regime, expecting that converting homeowners would see reduced real property taxes and improved marketability. All members had to consent to the overall conversion, but individual homeowners weren't required to convert their own lots -- those who declined would simply continue owning their lots under the existing homeowner-association structure. For homeowners who did convert, their lot would be deeded to the new condominium (through an escrow agent, likely a title company), and in exchange the homeowner would receive a condominium unit deed. That condominium unit would consist of the homeowner's entire home (including exterior walls, roof, and foundation slab, or interior party walls for townhouses) plus an equal percentage interest in the condominium's common elements -- with the homeowner's former lot becoming a "limited common element" reserved for that unit's exclusive use. In effect, each converting homeowner would end up with exactly the same exclusive right to "his land" that he had before conversion. The homeowners association itself would continue existing, continue owning the same common areas as before, and continue collecting equal assessments from all members whether or not they converted.

Why it's exempt. New York's transfer tax and gains tax both exempt conveyances that are a "mere change of identity or form of ownership or organization" with no change in beneficial ownership. The Department applied its earlier ruling in 115 Spring Street Company, TSB-A-94(3)R -- involving a cooperative housing corporation where each partner held a beneficial interest solely in the specific unit they occupied, with no interest in other partners' units, such that transferring co-op shares to each partner individually (matched to the unit they already occupied) was a mere change of form. Applying that same logic here, the Department found that each Vacation Village homeowner, under the association's governing Declaration, held a beneficial interest solely in the lot and home he or she occupied, with no interest in any other homeowner's lot -- and that this beneficial ownership had "continuously vested" in each individual homeowner regardless of the technical fact that they were also association members. Because the condominium conversion would simply swap each homeowner's lot deed for a condominium deed covering the exact same physical lot and home (plus a standard common-element interest), no one's actual beneficial ownership would change. The Department held the conversion qualified as a mere change of identity or form of ownership, exempt from both the transfer tax and the gains tax.

What this means for you

Homeowners associations converting subdivisions to condominium regimes

Converting a lot-deed/HOA ownership structure to a condominium structure -- where each homeowner receives a condo unit deed covering the exact same physical space they already occupied -- is a well-established, tax-exempt "mere change of form" transaction, as long as beneficial ownership genuinely doesn't change (no one ends up with a different lot, a changed ownership share, or new co-owners).

Developers and real estate attorneys structuring condominium conversions

The key factual anchors the Department relied on here were that (1) each homeowner's beneficial interest was always tied solely to their own individual lot under the pre-existing governing documents, and (2) the post-conversion condominium unit corresponded to that exact same physical space. If a conversion instead reshuffles boundaries, consolidates or divides units differently than the pre-existing lots, or changes proportional ownership shares, the mere-change analysis would need to be reassessed on those different facts.

Accountants and tax professionals reviewing older condominium conversion transactions

The Real Property Transfer Gains Tax discussed in this ruling was repealed for transfers occurring on or after June 15, 1996 and is no longer a live concern for new condominium conversions -- only the Real Estate Transfer Tax mere-change exemption remains relevant today.

Common questions

Q: Does converting my homeowners-association-governed subdivision to a condominium regime trigger New York transfer tax?
A: Not if each converting homeowner's condominium unit corresponds to the exact same lot and home they already owned, with a standard proportional common-element interest -- that's treated as a mere change of form with no change in beneficial ownership.

Q: Do all homeowners in the association need to convert for the exemption to apply?
A: No -- in this ruling, individual homeowners could opt out of converting their own lots (while the overall plan still required unanimous member consent to proceed), and the homeowners association itself continued to exist and own the common areas regardless.

Q: What's the key factual requirement for this exemption to apply to a condo conversion?
A: Each homeowner's beneficial ownership must genuinely stay the same -- meaning their condominium unit must correspond to the exact same space they occupied before, with no reshuffling of boundaries or ownership shares among different homeowners.

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 transfers.

Citations and references

Statutes and prior opinions:

• Section 1401(e) of the Tax Law (definition of "conveyance")
• 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 from the transfer tax)
• Section 1440.7 of the Tax Law (gains tax definition of "transfer of real property")
• Sections 1441, 1443.1 of the Tax Law; 20 NYCRR 590.1 (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)
• 115 Spring Street Company, Adv Op Comm T&F, March 30, 1994, TSB-A-94(3)R

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/multitax/a94_6r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-94 (6)R
Real Property Transfer
Gains Tax
Real Estate Transfer Tax
May 24, 1994

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M940422C

On April 22, 1994, a Petition for Advisory Opinion was received from Vacation Village
Homeowners Association, Inc., P. 0. Box 650, Loch Sheldrake, New York 12759.
The issue raised by Petitioner, Vacation Village Homeowners Association, Inc., is whether
the proposed conversion of lots within the homeowners association into condominium units and the
resulting exchange by association members of their lot deeds for condominium deeds would
constitute a mere change of identity or form of ownership or organization and therefore be exempt
from the Real Property Transfer Gains Tax (hereinafter the "gains tax") and the Real Estate Transfer
Tax (hereinafter the "transfer tax").
Petitioner is a homeowners association encompassing a realty subdivision, known as
Vacation Village, located in Sullivan County, New York. Each lot in the development has been
deeded to its homeowner by a deed, recorded in the Office of the Sullivan County Clerk. Many lots
are encumbered by mortgages which are recorded as liens against the applicable lots. Pursuant to the
Declaration of Covenants, Restrictions, Easements, Charges and Liens (the "Declaration") each
homeowner is automatically a member of Petitioner, which owns title to the common facilities such
as athletic facilities and the community center.
It is proposed that the ownership of the lots in the development will be converted to a
condominium structure of ownership. It is anticipated that homeowners who participate in such
conversion would realize reductions in real property. taxes and increased value and marketability of
their respective properties. All of the members of Petitioner must consent to the conversion,
although not every homeowner will be required to exchange his or her lot for a condominium unit.
In such instances, homeowners who do not wish to convert their lots to condominium ownership will
continue to own their lots under the existing homeowner association form of ownership.
Under the proposed structure, Petitioner would remain in existence with all of its members,
and would continue to own all of the existing common areas. The Declaration would be amended
and a new Condominium Declaration would be recorded. The lot of each converting homeowner
would be deeded to the condominium through an escrow agent or similar nominee (most likely a title
company). In exchange, the homeowner would receive a condominium unit deed. After the
exchange, the homeowner would own a condominium unit, comprised of his entire home, including
the exterior (or the middle, in the case of townhouse party walls) of the walls, roof and foundation
slab. In addition, the homeowner would own an equal percentage interest in the condominium's
common elements, including (and with exclusive use of) the limited common elements consisting
of the homeowners former lot. Thus, each condominium unit owner would enjoy the same exclusive

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Real Estate Transfer Tax
May 24, 1994
right to "his land" as he did prior to the conversion. Moreover, the homeowners would remain a
member of Petitioner, which would continue to own the existing common areas (i.e., the entire
subdivision other than the individual lots). Petitioner would continue to collect equal assessments
from all owners, whether or not they participated in the conversion, and would continue to maintain
all of the common areas.
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 or any interest in real property by any method.
Section 1405 of the Tax Law provides, in part, as follows:
Sec. 1405. Exemption.--(a) The following shall be exempt from payment of
the real estate transfer tax:
*

*

*

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;
   Pursuant to Sections 1441 and 1443.1 of the Tax Law and Section 590.1 of the Gains Tax
   Regulations the gains tax is a ten percent tax on the gain derived from the transfer of real property,
   which includes the acquisition or transfer of a controlling interest in any entity with an interest in real
   property, where the property is located in New York State and where the consideration for the
   transfer is one 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 an method.
   Section 1443 of the Tax Law provides, in pertinent part, as follows:
   Sec. 1443. Exemptions.-- A total or partial exemption shall be allowed in the
   following cases:
   *

*

*

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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 a no change in
   beneficial interest.
   In 115 Spring Street Company, Adv Op Comm T&F, March 30, 1994, TSB-A-94(3)R, the
   Commissioner opined that where each partner pursuant to a partnership agreement held a beneficial
   interest solely in the unit he occupied and had no interest in the other partners' units, that it was
   recognized that the beneficial ownership of each unit vested with each individual partner without
   regard to ownership of the property being held by the petitioner. Thus, the transfer of the shares
   allocated to the units from the cooperative housing corporation to each partner whereby each partner
   received shares allocated to the unit he occupied constituted a mere change of identity or form of
   ownership or organization since there was no change in the beneficial ownership of each unit.
   In the instant case each homeowner, pursuant to the Declaration, holds a beneficial interest
   solely in the lot and home he or she occupies as his or her residence and holds no interest in the other
   homeowner's lots and homes. Under the proposed plan, each homeowner who participates in the
   conversion would exchange his or her lot and home for a condominium unit (and appurtenant limited
   common elements) comprised of the same exact lot and home. Accordingly, it is recognized that the
   beneficial ownership of each lot and home has continuously vested with each individual homeowner
   without regard to the homeowner being a member of a homeowners association.
   Therefore, for purposes of the transfer tax, pursuant to the rationale set forth in 115 Spring
   Street Company, supra, the conversation of the lots and homes within Petitioner into condominium
   units and the resulting exchange by the homeowners of their lot deeds for condominium unit deeds
   will not effectuate a change in the beneficial ownership interest as held by the homeowners prior to
   the conversion. Accordingly, pursuant to Section 1405(a)(6) of the Tax Law the conversion of the
   lots and homes within Petitioner into condominium units and the resulting exchange by the
   homeowners of their lot deeds for condominium unit deeds will constitute a mere change of identity
   or form of ownership or organization since there will be no change in the beneficial ownership of
   each lot and home and, thus, such conveyances will not be subject to the transfer tax.
   For purposes of the gains tax, in the instance case each homeowner pursuant to the
   Declaration holds a beneficial interest solely in the lot and home he or she occupies as his or her
   residence and holds no interest in the other homeowner's lots and homes. Moreover, under the
   proposed plan, each homeowner who participates in the conversion would exchange his or her lot
   and home for a condominium unit (and appurtenant limited common elements) comprised of the
   same exact lot and home. Accordingly, since the conversion of the lots and homes within Petitioner
   into condominium units and the resulting exchange by the homeowners of their lot deeds for
   condominium unit deeds will not effectuate a change in the beneficial ownership interest as held

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by the homeowners prior to the conversion, pursuant to Section 1443.5 of the Tax Law and 115
Spring Street Company, supra, the conversion of the lots and homes within Petitioner into
condominium units and the resulting exchange by the homeowners of their lot deeds for
condominium unit deeds will constitute a mere change of identity or form of ownership or
organization since there will be no change in the beneficial ownership of each lot and home and,
thus, such transfer will not be subject to the gains tax.

DATED: May 24, 1994

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

NOTE: The opinions expressed in Advisory 0pinions
are limited to the facts set forth therein.