What is a Flip Tax?
If you’re an apartment owner, you’ve probably wondered “What is a flip tax?” If you’re a buyer, the term may have never even crossed your mind. But regardless of which camp you fall into, it’s something you need to know about.
What a Flip Tax Is (And Isn’t)
First, a flip tax is not actually a “tax” – it’s not something that is levied by the local, state or federal government. Instead, it’s a fee imposed by co-ops at the time an apartment is sold. There are various ways for buildings to structure the fee – it can be on the gross sale price; it can be on the net profit; it can be a flat fee; or it can be “x” amount of dollars per share of the apartment.
The flip tax is usually the responsibility of the owner. However, there are some buildings which require the buyer to pay it, which is why it’s important to ask about it whenever you’re viewing a property.
Why Do Flip Taxes Exist?
Part of the reason for its existence is in its name – it helps to discourage the flipping of homes. In fact, some buildings have clauses where the longer you stay in the building, the less flip tax you’ll pay once it comes time for you to sell.
Another reason it exists is because it’s a convenient way for the building to increase its reserve funds (i.e. the money used to maintain or update the building). So while it’s no fun to pay it when you leave, you certainly benefit during your ownership from others who have paid prior to you.
Have more questions about co-ops and things to look out for? Feel free to reach out. I’m always happy to help!