We're buying THREE adjacent condo units with one purchase money mortgage and plan to combine them into a single home after closing, but the units aren't merged yet. Does our mortgage get taxed at the residential rate or the higher commercial rate?

Plain-English summary

A couple entered into a single Purchase Agreement for three adjacent NYC condominium units, intending to combine them into one apartment as their primary residence. The combined purchase price wasn't broken out by unit. The condominium's rules didn't allow the buyers to alter the units before closing, but the seller performed work at its own expense solely to obtain a temporary certificate of occupancy covering all three units together. Before closing, the buyers had architectural plans prepared and a contractor's renovation cost estimate ready, and after closing they planned to fund the combination themselves, obtain a new Certificate of Occupancy for the merged space, and get the seller/developer to amend the Condominium Declaration to reflect the combined unit. Their anticipated purchase money mortgage exceeded $500,000. They asked whether NYC's mortgage recording tax (MRT) would apply at the lower residential rate or the higher commercial rate.

This follows directly from the Department's own recent opinion, TSB-A-13(3)R, issued the year before, which held that a mortgage covering two not-yet-combined adjacent condo units qualifies for the lower residential rate where the buyers show clear, pre-closing intent to combine them. The Department also drew again on the NYC Real Property Transfer Tax's "bulk sale" case law (including Matter of Gruber, involving a strikingly similar fact pattern — three units on an unfinished floor, combined post-closing, with temporary-occupancy work done by the seller before closing), which reaches the residential rate whenever the buyer's intent to combine is clearly evidenced.

Weighing the couple's facts — a single undivided purchase price, pre-closing architectural and cost planning, and the seller's temporary-occupancy work aimed at enabling the future combination — the Department found the same kind of clear combination intent, and extended the residential-rate holding from two units (TSB-A-13(3)R) to three units. The combined NYS/NYC rate is 2.175% (split $1.925 paid by the mortgagor, $0.25 by the mortgagee), instead of the higher commercial rate. But the Department added an important caveat: if the units are ultimately not merged, the buyers will have underpaid the tax and will owe the additional MRT.

What this means for you

Buyers combining three or more adjacent condo/co-op units

The residential MRT rate isn't capped at combining just two units — this ruling extends the same "clear intent" analysis to three units, and the underlying reasoning doesn't obviously cap out at any particular number, as long as the combination-intent evidence is strong.

Buyers relying on the residential rate for a not-yet-completed combination

Follow through on the merger. The Department explicitly warned that failing to actually combine the units after claiming the residential rate results in an underpayment of MRT, with additional tax owed — this isn't a one-time election free of consequences if plans change.

Real estate attorneys structuring multi-unit combination purchases

Build a clear paper trail before closing: a single purchase agreement without a per-unit price breakdown, completed architectural plans, a contractor estimate, any seller work aimed at enabling a combined certificate of occupancy, and a stated intent to amend the condominium declaration — all of which were treated as meaningful evidence here.

Common questions

Q: Is there a limit on how many units can be combined and still get the residential rate?
A: This ruling doesn't set an explicit numeric cap — it simply extends the two-unit holding of TSB-A-13(3)R to three units based on similarly strong evidence of combination intent. Facts matter more than the raw unit count.

Q: What happens if we get the residential rate but then never combine the units?
A: The Department was explicit: if the units are not merged, the buyers will have underpaid the MRT and additional tax will be owed.

Q: Does a single combined purchase price (not broken out by unit) matter to this analysis?
A: Yes — it was one of the facts supporting the finding of a clear, unified intent to treat the three units as a single future residence rather than separate investment units.

Q: Can I rely on this ruling for my own multi-unit purchase?
A: No. This advisory opinion binds the Department only as to the petitioner and the specific facts described.

Citations and references

Statutes and regulations:

• Tax Law § 253 (state mortgage recording tax)
• Tax Law § 253-a (authorizes NYC mortgage recording tax)
• NYC Administrative Code § 11-2601.d (NYC MRT rate tiers by property type/debt amount)
• 20 NYCRR § 642.4(a)(2)(ii) (residential-rate regulation for 1-3 family houses and condo units)

RPTT case law cited by analogy:

• In the Matter of Cambridge Leasing, TAT(E) 03-11
• In the Matter of Rosenblum, TAT(E) 2001-31 (RP)
• In the Matter of Gruber, TAT(E) 2003-7/8/9 (RP), Sept. 12, 2006
• NYC Finance Memorandum 00-6REV (Sept. 8, 2011)

Related opinions

• TSB-A-13(3)R — the origin case establishing the "clear intent to combine" test for a two-unit combination mortgage, directly extended here to three units.

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/mortgage_rec_ao_2014.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/mortgage/a14_1r.pdf

Original ruling text

New York State Department of Taxation and Finance

Office of Counsel
Advisory Opinion Unit

TSB-A-14(1)R
Mortgage Recording Tax
July 2, 2014

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M131115B

The Department of Taxation and Finance received a Petition for Advisory Opinion from
REDACTION REDACTION REDACTION REDACTION REDACTION. Petitioners ask
whether the recording of their purchase money mortgage securing more than $500,000 of
principal debt for the purchase of three separate but adjacent condominium units will be subject
to the mortgage recording tax residential rate or the higher commercial rate.
We conclude that the combined New York City and New York State residential rate of
2.175% will apply.
Facts
Petitioners have entered into a Purchase Agreement (the “Agreement”) for the purchase
of three adjacent condominium units (the “Property”) which they intend to combine into a single
apartment. Once the construction is completed, Petitioners plan to occupy the Property as their
primary residence and live there with their children. The combined purchase price for the
Property is set forth in the Agreement and no portion of the purchase price or the down payment
is specifically attributable to a single unit. The anticipated purchase money mortgage for the
Property is expected to be in excess of $500,000.
Although combination of the units will not be permitted to take place until after the
closing, the seller will perform work at its expense prior to the closing for the sole purpose of
inducing the New York City Department of Buildings to issue at least a temporary certificate of
occupancy covering the three units.
Architectural prints for combining the units after the closing and the contractor’s estimate
of the cost for making the renovations were prepared prior to closing and submitted with this
Petition. Petitioners will bear the sole cost of combining the units after they take ownership of
the Property. They intend to obtain a new Certificate of Occupancy for the Property as one
apartment prior to moving into the residence, and they also intend to cause the seller and the
developer to amend the Condominium Declaration to provide for an apportionment of common
elements consistent with having all three units combined as one unit.
Analysis
New York City is authorized to impose a NYC MRT under Tax Law § 253-a, and did so
under the New York City Administrative Code (the Code) § 11-2601.d. This tax is in addition to

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TSB-A-14(1)R
Mortgage Recording Tax
July 2, 2014

the State MRT imposed under Tax Law § 253. The New York State Department of Taxation and
Finance administers both of the NYC MRT and the State MRT, as well as numerous local MRTs
under Article 11 of the Tax Law. See Tax Law § 263.
The NYC MRT provides for different rates, depending on the use of the property
mortgaged and the amount of debt secured, and provides as follows.
d. With respect to: (1) real property securing a principal debt or obligation of
less than five hundred thousand dollars, a tax of one dollar, (2) with respect
to one, two or three-family houses and individual residential condominium
units securing a principal debt or obligation of five hundred thousand dollars
or more, a tax of one dollar and twelve and one-half cents, and (3) with
respect to all other real property, a tax of one dollar and seventy-five cents,
for each one hundred dollars and each remaining major fraction thereof of
principal debt or obligation which is, or under any contingency may be
secured at the date of execution thereof, or at any time thereafter by a
mortgage on such real property situated within the city and recorded on or
after August first, nineteen hundred ninety, is hereby imposed on each such
mortgage and shall be collected and paid as provided in this chapter. If the
principal debt or obligation which is or by any contingency may be secured
by such mortgage is less than one hundred dollars, a tax of one dollar is
hereby imposed on such mortgage and shall be collected and paid as
provided in this chapter.
A regulation, 20 NYCRR § 642.4(a)(2)(ii) adopted in 1994, explains § 11-2601 of the
Code, but its words are slightly different from those in the Code.1
Where the amount of such principal debt or obligation is $500,000 or more
and the mortgage is of real property consisting only of a one-, two- or threefamily house or an individual residential condominium unit, the rate of tax is
one dollar and 12 ½ cents. For purposes of determining whether the
mortgage is of real property consisting only of a one-, two- or three family
house or an individual residential condominium unit, the nature of the
property as of the date that the mortgage is executed must be used.
The issue is whether the recording of Petitioner’s mortgage, covering the purchase of three
individual units when the mortgage was executed, should be taxed at the higher commercial rate.
The New York City Real Property Transfer Tax (RPTT) is similar to the NYC MRT in
that it imposes tax rates based on the amount of consideration and the type of use. See Code §
11-2101.a(9). The highest rate is imposed on “bulk sales,” which generally include transactions
where a single grantor transfers more than one cooperative apartment or residential
condominium unit to a single grantee for consideration over $500,000. See New York City
1

These words track Tax Law § 1402, which imposes the real estate transfer tax (RETT).

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TSB-A-14(1)R
Mortgage Recording Tax
July 2, 2014

Department of Finance letter ruling 00-06REV, September 8, 2011. In order to determine
whether a transfer constitutes a bulk sale subject to the higher commercial RPTT, the
Department will look to the facts and circumstances of the specific case.
Three September 12, 2006 New York City Tax Appeals Tribunal RPPT decisions provide
guidance on what constitutes a bulk sale. In The Matter of Cambridge Leasing, TAT (E) 03-11,
Petitioner sold three condominium units pursuant to a single contract. Two of the units had been
combined prior to the sale; the third unit was a maid’s room, less than 200 square feet, with no
kitchen facilities and located on a separate floor. The maid’s room could be purchased only in
conjunction with the purchase or ownership of a residential unit and its use was restricted as
well. The Tribunal found that, under these particular facts, the transfer of the combined
apartments and the maid’s room was not the sale of multiple residential condominium units. In
The Matter of Rosenblum, TAT (E) 2001-31 (RP), the taxpayer purchased a condominium unit
along with a “Suite Unit”, a wine cellar unit and a storage unit. Even though the Suite Unit was
equipped with a kitchenette and bathroom, the Tribunal ruled that the transfer did not result in a
bulk sale. A factor in the decision was that none of the additional units could be purchased by
anyone other than a condominium owner. Lastly, in The Matter of Gruber, TAT (E) 2003-7
(RP); TAT (E) 2003-8 (RP); TAT (E) 2003-09 (RP), the taxpayer purchased all three units on an
unfinished floor of a condominium building for the purpose of combining them into one
residence. However, in order to get a Certificate of Occupancy, the sponsor had to put up
temporary walls and meet certain minimum requirements for the kitchen and bathroom. The
Tribunal reasoned that the taxpayer clearly intended to combine the units into one residence
immediately after obtaining title, and, thus, it ruled that there was no bulk sale and the lower
RPTT rate applied.
A recent Advisory Opinion, TSB-A-13(3)R, addressed the issue of which NYC MRT rate
applied when the Petitioners bought a condominium adjacent to the condominium they owned
and used as their primary residence. The Condominium’s governing documents did not permit a
prospective purchaser to make any alterations prior to closing. In preparation for combining the
units, architectural plans were completed prior to closing and various documents were signed
with the Condominium Board regarding the conditions under which the construction could
proceed. Among the requirements, construction had to begin within 30 days from the signing of
the Agreement and be completed with 120 days from the time construction was begun. We
concluded that the Petitioners evidenced, prior to closing, a clear intent to combine the two
adjacent units in order to increase their living space. Thus, the NYC MRT rate imposed on the
recording of Petitioners’ mortgage executed at the closing on the adjacent condominium was the
rate applicable to one, two or three-family houses and individual residential condominium units
securing a principal debt or obligation of five hundred thousand dollars or more.
Drawing on the facts and circumstances in the above RPTT cases and our recent TSB-A13(3)R, we conclude that Petitioners have evidenced a clear intent, prior to the closing, to
combine the three adjacent units into one primary residence. We further conclude that, under
these facts and circumstances, the NYC MRT rate imposed on the recording of Petitioners’
mortgage is the rate applicable to one, two or three-family houses and individual residential

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TSB-A-14(1)R
Mortgage Recording Tax
July 2, 2014

condominium units securing a principal debt or obligation of five hundred thousand dollars or
more. Accordingly, the combined New York State and New York City MRT rate for the
recording of this mortgage would be $2.175 for each $100 dollars of principal debt, of which
$1.925 would be paid by the mortgagor and 25 cents would be paid by the mortgagee. However,
if the units are not merged, the Petitioners will have underpaid the MRT and additional MRT
would be owed.

DATED: July 2, 2014

NOTE:

/S/
DEBORAH R. LIEBMAN
Deputy Counsel

An Advisory Opinion is issued at the request of a person or entity. It is limited to the
facts set forth therein and is binding on the Department only with respect to the
person or entity to whom it is issued and only if the person or entity fully and
accurately describes all relevant facts. An Advisory Opinion is based on the law,
regulations, and Department policies in effect as of the date the Opinion is issued or
for the specific time period at issue in the Opinion. The information provided in this
document does not cover every situation and is not intended to replace the law or
change its meaning.