Three home building companies pooled land into a joint holding corporation, then each builder sold its allotted lots (with houses already built by that builder) to individual home buyers -- sometimes using a redundant second deed from the builder since the builder never actually held title. Do all these individual home sales get added together for New York's $1 million Real Property Transfer Gains Tax threshold, since they all trace back to one big parcel?

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 It was repealed for any transfer occurring on or after June 15, 1996.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 1995 opinion is preserved here for historical and research value, not as current law.

Four individuals, operating through three separately-owned home building companies (referred to as A, B, and C), wanted to jointly develop a large parcel that none of them had the capital to handle alone. They formed BDL Properties, Inc., owned one-third each by the owners of A, B, and C, to hold title and streamline the development. Once the land was ready, the builders divided the lots among themselves using a lottery-style, round-robin picking system until each builder had 16 lots, then went their separate ways -- each builder marketing, selling, and building on its own allotted lots independently.

When a buyer wanted a home, they contracted simultaneously with BDL (for the lot) and with the individual builder (for the house), and the deal was structured so that a lot could never be sold without an already-built house on it, and the specific builder had to be the one who'd won that lot in the lottery. Title to the lots never actually passed from BDL to the individual builders -- BDL conveyed directly to the home buyer. Some closings used just one deed (lot and house together); others used two deeds (one from BDL, one from the builder), delivered and recorded simultaneously with identical legal descriptions -- the builder's deed being essentially redundant, since the builder never held title to convey in the first place. Every individual home sale in the development was for under $1 million, spanning late 1987 to early 1990.

The gains tax's general aggregation rule (former § 1440.7) swept in "partial or successive transfers" of subdivided real property -- but specifically excepted subdivided parcels sold improved with residences to buyers who would use them as their own residences (other than cooperative or condominium sales). Because BDL's lots were, in every case, transferred directly to individual home buyers already improved with a completed residence, the Department confirmed the exception applied: each home sale was tested against the $1 million threshold on its own, with no aggregation across BDL's many individual lot sales, regardless of how many total lots or dollars the whole subdivision represented.

What this means for you

Homebuilder joint ventures using a shared land-holding entity

Under this now-repealed tax, structuring a multi-builder development through a jointly-owned holding company -- with lots allocated among the builders and sold directly, improved, to individual homeowners -- didn't create an aggregation problem across the whole project, as long as each individual sale genuinely delivered a completed residence to a buyer who'd use it as such. The redundant "extra deed" from a builder who never held title didn't change that analysis.

Real estate attorneys structuring closings with a builder and a separate land-holding entity

This ruling confirms that using two deeds at closing (one from the title-holding entity, one nominally from the builder) purely for lender or title-insurance comfort, where both describe the identical property and are recorded together, doesn't itself create a second taxable "transfer" or complicate the aggregation analysis -- the substance (a direct transfer from the land holder to the buyer) controlled.

Accountants tracking pre-1996 residential subdivision developments

If you're reconstructing the gains-tax history of a multi-phase, multi-builder residential subdivision, this opinion is a clean example of the subdivided-residential-parcel exception protecting even a fairly complex ownership and closing structure from aggregation.

Common questions

Q: Does this aggregation exception still matter for builder joint ventures today?
A: No. The Real Property Transfer Gains Tax was repealed for transfers on or after June 15, 1996, so this specific $1 million aggregation analysis no longer applies to current developments.

Q: Why didn't the redundant second deed from the builder create a separate taxable transfer?
A: Because title never actually passed from BDL to the builder in the first place -- the builder's deed was essentially a bill of sale standing in for a document that could be recorded, not evidence of an actual conveyance. The Department treated the real transfer as running directly from BDL to the home buyer.

Q: Would this exception have applied if BDL sold lots to buyers WITHOUT a completed residence on them?
A: No -- the exception specifically requires the subdivided parcel to be "improved with residences" at the time of transfer to a buyer who will use it residentially. Bare-lot sales would fall back under the general aggregation rule.

Q: Can another builder joint venture rely on this specific ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and this opinion also explicitly declined to address BDL's separate sales of lots to OTHER, unrelated builders outside the A/B/C group.

Citations and references

Statutes and regulations:

• former Tax Law § 1441 (imposition of the gains tax at 10% of gain, for transfers with consideration of $1 million or more)
• former Tax Law § 1443.1 (the $1 million exemption)
• former Tax Law § 1443.5 (mere change of identity or form of ownership exemption -- not reached here since title never passed to the builders)
• former Tax Law § 1440.7 (definition of "transfer of real property"; excepts subdivided residential parcels improved with residences, sold to buyers for use as their residences, from the aggregation rule for successive/partial transfers)
• former 20 NYCRR § 590.43(g), later renumbered § 590.44(g) (subdividing real property is generally subject to aggregation, except where the subdivided property is improved with residences and used for residential purposes, other than cooperative or condominium plans)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1995.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a95_8r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-95 (8)R
Real Property Tax
August 22, 1995

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M950314A

On March 14, 1995, a Petition for Advisory Opinion was received from BDL Properties, Inc.,
c/o Timothy Downing, P.O. Box 235, Fairport, New York 14450.
The issues raised by Petitioner, BDL Properties, Inc., are:
1.

Whether the transfers of subdivided lots improved with residences thereon
to transferees for use as their residences for a consideration of less than
$1,000,000 each, using two deeds, one from the corporation which owned the
land, and one from the building company which did not own the land, where
deed descriptions were identical and deeds were recorded simultaneously, are
deemed not to be a single transfer and, therefore, not subject to aggregation
under Section 1440.7 of the Tax Law.

2.

Whether the transfers would constitute a mere change of identity or form of
ownership and thus be exempt from the Real Property Transfer Gains Tax
(the "gains tax") if the transfers are determined to be transfers of real property
from the corporation to the individual building companies.

In the 1980's, four individuals, who own three home building companies, discussed the
development, by their respective companies, of a large parcel of land located in New York State. The
building companies (hereinafter referred to as "A", "B" and "C") were separately owned 100% by
each said individual, except for A, which was owned 100% by two brothers. A, B and C standing
alone, did not have the capital or buying power available to develop a parcel as large as the one
contemplated. Thus, A, B and C pooled their resources and formed Petitioner to help streamline
management, allow for more efficiency in developing the land and increase their probability of
obtaining construction loans.
The ownership of Petitioner was set up so that the owners of A, B and C each held one-third
of the corporate stock. The two brothers who owned A held five shares each. The owners of B and
C owned 10 shares each. The Petitioner had four shareholders; two of the shareholders owned 100%
of A and the other two shareholders owned 100% of B and C separate and distinct from each other.
There were no other shareholders or interest holders in Petitioner or A, B or C at any other time.
With Petitioner in place as the legal title holder of the property, the shareholders determined
an equitable manner in which to carry out their intentions. The intent was for each shareholder (the
two brothers treated as one) to have enough lots to equal one-third of the value of the total parcel,

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and then to sell the individual lots with personal residences constructed on them to individuals who
would use them as such. To do this, the shareholders first established a market value for each lot
by group of lots. There were five or six groups of lots which were grouped by location. Thus, there
was a group of lots with woods, a group by the stream, and a group inside a circle.
Once market values were determined, a method had to be devised to divide the lots fairly
among the shareholders to yield to the individuals who owned A, B and C one-third of the value, or
as close to that value as possible, of the total parcel. It was decided that the easiest and fairest method
to divide the lots was to utilize a lottery type system. In a manner similar to drawing straws, A
received the opportunity to pick the first lot, B received the second lot and C received the third lot.
After the first round, the order was reversed, giving C, who previously had third choice, first choice.
After that, the order was changed to give B who previously had second choice, first choice. This was
done until A, B and C each had 16 lots.
When that was accomplished, each shareholder went his or her own way. A, B and C placed
signs on their respective lots and used their own offices for contracts of sales and their own sales
staff.
The transfer of the lots occurred in the following manner. When a prospective buyer wanted
to purchase a home, they approached the individual builder whose sign was on the lot. The individual
home builder (either A, B or C) would have the customer sign two contracts, one with Petitioner for
the lot and one with the builder for the home. The contracts were signed simultaneously and were
tied together in such a way that a lot could not be transferred without an improved residence on it.
The contract stated that one could not buy a lot without a house, and that the transfer of the house
and lot must be simultaneous. The contract for the lot contained a contingency requiring not only
that the buyer qualify for a home mortgage, but that the builder of the home must be the builder who
acquired the lot by lottery. No one could buy the house without buying the lot simultaneously and
Petitioner could not close on the lot without a residence being constructed on it.
Title to the lots was never transferred from Petitioner to the builders. In some instances only
one deed for both the lot and house was given by Petitioner to the home buyer. In other instances
there were two deeds (sometimes one warranty and one quit claim deed, and sometimes two warranty
deeds) given to the buyer, one from Petitioner and one from the home builder. The deeds were
always given simultaneously and recorded simultaneously. Two deeds were often used since
Petitioner owned the lot and the buyer's attorney wanted a deed from the builder rather than a bill
of sale which traditionally cannot be recorded. The deed descriptions were identical, were delivered
simultaneously and recorded simultaneously. Since there was never a transfer from Petitioner to the
builder, the deed from the builder was redundant and served only as a bill of sale. Every house sold
in the subdivision sold for less than $1 million. All the transfers occurred between October 28, 1987
and January 25, 1990.

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In addition, Petitioner made transfers of lots to builders other than A, B and C. The taxability
of those transfers are not being considered as part of this Advisory Opinion.
Pursuant to Sections 144 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.
At the time of the transfer of the lots at issue, Section 1440.7 of the Tax Law provided, in
pertinent part, as follows:

7. "Transfer of real property" means the transfer or transfers of any interest
   in real property by any method, including but not limited to sale, exchange,
   assignment, surrender, mortgage foreclosure, transfer in lieu of foreclosure, option,
   trust indenture, taking by eminent domain, conveyance upon liquidation or by a
   receiver, or transfer or acquisition of a controlling interest in any entity with an
   interest in real property.
   ... 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. (emphasis added)
   Moreover, at the time of the transfer of the lots at issue, Section 590.43(g) of the Gains Tax
   Regulations provides as follows:
   (g) Question: Will the subdividing of real property be subject to aggregation
   pursuant to section 1440(7) of the Tax Law?
   Answer: Yes. Section 1440(7) of the Tax Law specifically provides that all
   subdividing of real property is subject to the aggregation rule, except in the case
   where the subdivided property is improved with residences and is used for residential
   purposes, other than those pursuant to cooperative or condominium plans. (See
   section 590.68 of this Part for information on payment of tax in aggregated transfer
   situations.) (emphasis added)
   In the instant case, subdivided lots owned by Petitioner were contracted to be purchased by
   individual purchasers contingent upon such purchasers contracting with A, B or C, entities related
   to the beneficial owners of Petitioner, to build a residence on such lots. At the time of closing, the

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lots were improved with residences built by A, B or C. Titles to the lots were never transferred from
Petitioner to A, B or C. In some instances only one deed for both the lot and house was given by
Petitioner to the home buyer. In other instances there were two deeds given to the buyer, one from
Petitioner and one from the home builder. The deeds were always given simultaneously and recorded
simultaneously. Pursuant to Section 1440.7 of the Tax Law and Section 590.43(g) of the Gains Tax
Regulations, the consideration received from the transfer of subdivided real property is not subject
to aggregation where the subdivided parcels are transferred improved with residences to transferees
for use as their residences. Accordingly, with respect to issue "1", since title to the lots did not pass
between Petitioner and A, B or C, but the lots were transferred from Petitioner to the individual
purchasers improved with residences, the consideration received by Petitioner for the sale of such
lots was not required to be aggregated for purposes of establishing the $1 million threshold.
Concerning issue "2", since the transfers by Petitioner of lots in the subdivision were deemed
transferred directly to the individual home purchaser improved with residences and not to A, B or
C, this issue need not be addressed.
It is noted that Section 1440.7 of the Tax Law was amended by Chapter 61 of the Laws of
1989 and Chapter 170 of the Laws of 1994. Such amendments, however, do not affect the Advisory
Opinion rendered. In addition, Section 590.43(g) of the Gains Tax Regulations has been amended
and since renumbered to be 590.44(g). The amendments to 590.43(g)also do not affect the Advisory
Opinion rendered.

DATED: August 22, 1995

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

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