I subdivided a parcel of land into five residential lots and I'm now selling two more of them to a builder who will build houses on them. Do I have to add up the sale prices of all the lots I've sold from this subdivision to see if I hit New York's $1 million Real Property Transfer Gains Tax threshold, or is each lot sale tested separately?

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 the consideration was $1 million or more. It was repealed for any transfer occurring on or after June 15, 1996. This 1996 opinion -- issued shortly before the repeal took effect -- is preserved here for historical and research value (for example, if you're dealing with an old, unresolved gains-tax audit or appeal from before mid-1996), not as current law.

Enid Morrison had subdivided a parcel of land into five lots in 1992 and sold one of them that same year. She now planned to sell two more of the remaining lots to a buyer who intended to build single-family homes on them; the subdivision was zoned for residential use and had already been substantially improved with roads and dry-wells (about $350,000 worth of infrastructure). Her question: for purposes of the gains tax's $1 million exemption, did the Department have to add together the consideration she received across all these transfers from the same original parcel, or could each sale be tested on its own?

The general gains-tax rule (former Tax Law § 1440.7(b)) required aggregating "partial or successive transfers of interests in subdivided parcels of real property," treating them as one combined transfer regardless of timing or whether they followed a plan. But the same statute carved out an exception: transfers of parcels in a residential subdivision that has been substantially improved for residential use, made to a buyer who intends to build (or is building) residential dwellings on them, are NOT treated as a single transfer. Since Morrison's subdivision met that description -- zoned residential, substantially improved with roads and utilities, and sold to a builder planning single-family homes -- the Department confirmed each transfer (the 1992 sale and the two new sales) was tested separately. As long as each individual sale's consideration stayed under $1 million, all three were exempt.

What this means for you

Landowners and developers subdividing land for residential builders

If you're selling off lots from a subdivision to buyers who will build single-family (or similarly residential) homes on them, this now-repealed rule shows how New York used to distinguish "salami-slicing a big commercial deal into small pieces to dodge the tax" (which the aggregation rule targets) from "ordinary residential lot sales to homebuilders" (which the carve-out protected). While the tax itself is gone, the same look-through logic can resurface in other NY tax contexts that aggregate related transfers, so the underlying reasoning is still worth understanding.

Accountants and real estate attorneys researching pre-1996 transactions

If you're reconstructing the gains-tax treatment of a subdivision sale that closed before June 15, 1996, this opinion is a citable example of the residential-subdivision carve-out in former § 1440.7(b) being applied to a straightforward multi-lot sale with no aggregation.

Common questions

Q: Does New York's Real Property Transfer Gains Tax still apply to my property sale?
A: No. It was repealed for all transfers on or after June 15, 1996. If your transfer is happening now, this tax simply doesn't apply -- though New York's separate Real Estate Transfer Tax (Tax Law Article 31) may.

Q: Under the old gains tax, why would successive sales of subdivided lots normally get added together?
A: To prevent a seller from artificially splitting one large transfer into several smaller ones, each under $1 million, purely to escape the tax. The aggregation rule in former § 1440.7(b) addressed exactly that risk for subdivided parcels generally.

Q: Why didn't that aggregation rule apply here?
A: Because the statute specifically excepted transfers of substantially-improved residential-subdivision parcels sold to a buyer who intends to build (or is building) residential dwellings on them -- exactly Morrison's facts.

Q: Can another landowner rely on this ruling for a similar subdivision sale?
A: No, even setting the repeal aside -- an Advisory Opinion binds the Department only as to the petitioner and the specific facts described. Since the tax is now repealed, no one can rely on it going forward regardless.

Citations and references

Statutes:

• former Tax Law § 1441 (imposition of the gains tax at 10% of the gain, for transfers with consideration of $1 million or more)
• former Tax Law § 1440.7(b) (definition of "transfer of real property"; aggregation of successive subdivided-parcel transfers, with the residential-subdivision-to-builder carve-out)
• Chapter 309, Laws of 1996 (repealed the gains tax for transfers occurring on or after June 15, 1996)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1996.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a96_7r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-96 (7) R
Real Property
Transfer Gains Tax
June 27, 1996

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M960418A

On April 17, 1996 the Department of Taxation and Finance received a Petition for Advisory
Opinion from Enid Morrison, P.O. Box 109, Old Westbury, New York 11568.
The issue raised by Petitioner, Enid Morrison, is whether the consideration from the transfer
of two subdivided parcels is required to be aggregated for purposes of determining the application
of the exemption for a transfer of real property when the consideration is less than $1 million (the
$1 million exemption) under the Real Property Transfer Gains Tax (the "gains tax") imposed by
Article 31-B of the Tax Law.
Petitioner submits the following facts as the basis for this Advisory Opinion. Petitioner
subdivided a parcel in 1992 into 5 parcels. Petitioner transferred one of the parcels in 1992. The
Petitioner now plans to transfer two more of the parcels.
The purchaser in the present transfer intends to construct two single-family dwellings on the
two parcels. The subdivision containing the parcels has been zoned for residential construction and
has been substantially improved as roads and dry-wells have been constructed within the subdivision
at an approximate cost of $350,000.
Applicable Law
Section 1441 of the Tax Law imposes the gains tax on gains derived from the transfer of real
property within this state at the rate of ten percent of the gain.
Also, Section 1440.7(b) of the Tax Law provides:
Transfer of real property shall include ... partial or successive transfers of interests
in subdivided parcels of real property, without regard to the use of such real property
or whether such transfers were pursuant to a plan or agreement; provided, however,
that (A) the transfer of parcels located in a residential subdivision which have been
substantially improved for residential use to a transferee who intends to construct
residential dwellings on such parcels, or has constructed or is constructing residential
dwellings on such parcels, and (B) the transfer of parcels located in a residential
subdivision which have been improved or partially improved with a residential
dwelling, other than transfers pursuant to a cooperative or condominium plan, shall
not be deemed a single transfer of real property. Such substantial improvement may
include the construction of streets, sewers or utility lines. The fact that such
subdivision is a residential subdivision may be demonstrated by zoning restrictions

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TSB-A-96 (7) R
Real Property
Transfer Gains Tax
June 27, 1996
placed on such subdivided parcels or the existence of contracts entered into by the transferor to
transfer developed parcels or by the transferee to build residences or other similar circumstances."
Conclusion
Based on the facts presented by Petitioner, the transfer of the three parcels will not be treated
as a single transfer of real property for purposes of determining if the gains tax $1 million exemption
applies. Therefore, provided that the consideration attributable to each parcel is less than $1 million,
all three transfers are exempt from the gains tax.

DATED: June 27, 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.