We're buying a 127-acre parcel for commercial redevelopment. The land has one large structure that used to be a house but has been converted to office space (leased to an architecture firm and a law firm), plus five smaller ancillary structures (a couple of small houses, a vacant house, a stable/loft, and a caretaker's apartment over a garage). The main building will be demolished before or shortly after closing; some ancillary structures will also be demolished, and the rest converted to a day care center. Total consideration is over $1 million, but no single structure is worth anywhere near that. Does New York's 'mansion tax' -- the additional 1% Real Estate Transfer Tax on residential property sales of $1 million or more -- apply to this purchase?

Plain-English summary

Swiss Re America Holding Corporation asked the Department whether New York's "additional" Real Estate Transfer Tax -- an extra 1% tax under Tax Law Section 1402-a, commonly known today as the "mansion tax," that applies to conveyances of residential real property when consideration is $1 million or more -- would apply to its planned purchase of a 127-acre parcel for commercial development.

The property. The parcel contained a large structure of about 9,847 square feet that had originally been built as a one-family house but had been converted into office space (the "Main Building"), currently leased in full to an architectural firm and a law firm. Swiss Re planned to demolish the Main Building before or shortly after the sale closed. The parcel also contained five smaller "ancillary structures," collectively worth less than $1 million: a leased one-family house of about 874 square feet (to be demolished right after closing); a second leased one-family house of about 2,500 square feet (to be used as a temporary office during development, then demolished); a vacant one-family house of about 1,950 square feet; a structure with ground-floor horse stables and a 1,920-square-foot loft, currently used for storage; and a structure with a caretaker's apartment of about 2,137 square feet over a five-car garage. After the sale, Swiss Re planned to convert the third, fourth, and fifth ancillary structures into a day care center. Total consideration for the whole conveyance exceeded $1 million, but none of the individual structures came close to that figure on its own.

Why it's exempt. Section 1402-a imposes the additional tax only on conveyances of "residential real property" -- defined to include a one, two, or three-family house, a condo unit, or a co-op apartment -- where consideration for the entire conveyance is $1 million or more. As a general rule, when a parcel containing separate structures is conveyed to one grantee, the Department treats it as separate conveyances of each individual structure for purposes of this tax. The narrow exception is a residential estate: a one, two, or three-family house used as a main residence, conveyed together with genuinely ancillary structures like a guest house or servants' quarters, is treated as one residential conveyance.

Here, the Main Building no longer qualified as "residential real property" at all -- it had been fully converted to office use -- so it fell outside Section 1402-a regardless of its history as a house. That left the conveyance as separate transfers of each of the five ancillary structures (plus the non-residential Main Building, if it survived to closing). Since the consideration attributable to each individual ancillary structure was under $1 million, and the Main Building wasn't residential property in the first place, none of the separate conveyances hit the $1 million residential threshold that triggers the additional transfer tax.

What this means for you

Commercial real estate developers buying multi-structure land parcels

When you're buying a large parcel containing several structures for a lump-sum price over $1 million, the additional (mansion) transfer tax isn't automatically triggered just because the total deal size crosses $1 million. The Department looks at each structure's individually attributable consideration, not the parcel's total price -- as long as the structures aren't a residence-plus-guest-house combination conveyed as one residential estate.

Owners converting former residential buildings to commercial use before a sale

A building's history as a one, two, or three-family house doesn't control -- what matters is its status at the time of conveyance. A former house that has been fully converted to office (or other non-residential) use falls outside the "residential real property" definition entirely, taking it out of the additional tax's reach regardless of price.

Accountants and real estate attorneys structuring multi-parcel or multi-building transactions

The separate-conveyance-per-structure default, and its narrow exception for a residence conveyed with true ancillary structures (guest house, servants' quarters), is the operative framework here. Document each structure's individually attributable consideration and current use at closing to support this analysis if the deal is later questioned.

Common questions

Q: Does the mansion tax apply just because a multi-building parcel sells for more than $1 million in total?
A: Not necessarily. The Department generally treats a parcel with separate structures as separate conveyances of each structure, so what matters is the consideration attributable to each individual residential structure, not the deal's total price.

Q: What if the parcel includes a genuine main residence plus a guest house or servants' quarters?
A: That combination is treated as one residential conveyance, so if the combined consideration reaches $1 million, the additional tax would apply to the whole thing -- unlike unrelated ancillary structures on a commercial-redevelopment parcel.

Q: Does converting a former house to office use take it out of the additional transfer tax entirely?
A: Yes, according to this ruling -- once a structure is no longer used in whole or in part as a personal residence, it isn't "residential real property" under Section 1402-a, regardless of its original construction as a house.

Q: Can another buyer rely on this ruling for a similar multi-structure purchase?
A: No. This is an advisory opinion binding the Department only as to Swiss Re America Holding Corporation and the specific facts described. Every deal's facts -- especially each structure's current use and individually attributable price -- need their own analysis.

Citations and references

Statutes:

• Section 1402-a(a) of Article 31 of the Tax Law (additional real estate transfer tax on residential real property, $1 million+)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_estate_tran_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_estate/a96_11r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (11) R
Real Estate
Transfer Tax
September 12, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO.M960603A

On June 3, 1996, the Department of Taxation and Finance received a Petition for Advisory
Opinion from Swiss Re America Holding Corporation, 237 Park Avenue, New York, New York,
10017. Petitioner submitted additional information pertaining to the Petition on June 12, 1996.
The issue raised by Petitioner, Swiss Re America Holding Corporation, is whether the
conveyance of a certain 127-acre parcel of land that currently contains a large structure used for
offices as well as five ancillary structures is subject to the Additional Real Estate Transfer Tax (the
"additional transfer tax") imposed by Section 1402-a of Article 31 of the Tax Law.
Petitioner is contemplating purchasing, for commercial development, a 127-acre parcel of
land located in the State of New York (the "Property"). The consideration for this conveyance will
be in excess of $1 million.
The Property currently contains a large structure of approximately 9,847 square feet which,
while originally used as a one-family house, has been converted into office space (the "Main
Building"). An architectural firm, whose lease began on June 15, 1986, and a law firm, whose lease
began on January 1, 1995, are currently the exclusive occupants of the Main Building. It is
contemplated that the Main Building will be demolished prior to the conveyance of the Property to
the Petitioner.
In addition to the Main Building, the Property contains five smaller structures, which were
originally built as ancillary structures to the Main Building (the "ancillary structures"). The fair
market value of the ancillary structures is less than $1 million, in the aggregate.
The first of the ancillary structures is a one-family house of approximately 874 square feet
which has been leased since 1989, and which Petitioner intends to demolish immediately after the
conveyance. The second structure of the ancillary structures is a one-family house of approximately
2,500 square feet which has been leased since 1986. The Petitioner intends to demolish this second
structure after using it as an office while developing the Property. The third structure of the ancillary
structures is a vacant one-family house of approximately 1,950 square feet. The fourth ancillary
structure contains horse stables on the first floor and a loft of approximately 1,920 square feet on the
second floor. This structure is currently used for storage. The fifth ancillary structure contains an
apartment of approximately 2,137 square feet over a 5-car garage, and is occupied by the caretaker
of the Property and his family. After the conveyance, the Petitioner intends to convert the third,
fourth and fifth ancillary structures into a day care center.

-2­
TSB-A-96 (11) R
Real Estate
Transfer Tax
September 12, 1996
The development of the Property will be part of a New York State employee retention
project, and as such, it is anticipated that all or a portion of the Property will be held by the Empire
State Development Authority or other government agency, and leased back to the Petitioner.
Applicable Law
Section 1402-a(a) of Article 31 of the Tax Law imposes the additional transfer tax on each
conveyance of residential real property or interest therein when the consideration for the entire
conveyance is $1 million or more. Section 1402-a(a) sets forth that the phrase "residential real
property" shall include any premises that is or may be used in whole or in part as a personal
residence, and shall include a one, two, or three-family house, an individual condominium unit, or
a cooperative apartment unit. This section of the Tax Law further provides that the rate of the
additional transfer tax shall be one percent of the consideration or part thereof attributable to the
residential real property.
Analysis and Conclusion
Generally, for purposes of the additional transfer tax, a conveyance of a parcel containing
separate structures to one grantee or related grantees is treated as constituting separate conveyances
of each structure. An exception to this general rule is, for example, the conveyance of a one, two or
three-family house, which is used as the main residence of a residential estate to one grantee or
related grantees along with one or more ancillary structures, such as, for example, a guest house or
servants' quarters. This conveyance would constitute the conveyance of residential real property
subject to the additional real estate transfer tax if the consideration for the entire conveyance is $1
million or more.
In the situation of this Petition, the Main Building is not residential real property for purposes
of the additional transfer tax, as it has been converted to office space. Therefore, the conveyance
would constitute separate conveyances of the ancillary structures (and the Main Building if it is not
demolished prior to the conveyance) for purposes of the additional transfer tax. Accordingly, since
the consideration for the conveyance of each of the ancillary structures is less than $1 million and
the Main Building is not residential real property, the additional transfer tax would not apply to these
conveyances.

DATED: September 12, 1996

/s/
John W. Bartlett
Deputy Director
Technical Services Bureau

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