A deceased cooperative sponsor sold some apartments himself before he died, and bequeathed the remaining eight units in his will -- one each to three unrelated people, and five (as tenants in common) to his parents and brother. Is the bequest itself a taxable transfer, does it get combined with the sponsor's own pre-death sales for the $1 million gains-tax threshold, and are the family members' later individual sales aggregated with each other or with the unrelated beneficiaries' sales?

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 It was repealed for any transfer occurring on or after June 15, 1996.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 1990 opinion is preserved here for historical and research value, not as current law.

Alan M. DaCunzo sponsored a November 1984 offering plan converting a twelve-unit Manhattan building to cooperative ownership. He personally sold three apartments at conversion and a fourth before his death, leaving eight unsold units at the time he died. His will bequeathed those eight apartments: one each to three unrelated individuals, and the remaining five (as tenants in common) to his parents and brother. None of the eight beneficiaries had any prior interest in the property, the family group would hold their five units together as tenants in common, and none of the beneficiaries -- family or unrelated -- would have any continuing business relationship with each other after the estate distributed the units. The estate wanted to close out the decedent's own gains-tax filing before finalizing the estate accounting, since leaving the filing open would make it impossible to determine how much gains tax was ultimately attributable to the apartments the decedent sold himself before he died.

The Department worked through several layers. First, and most fundamentally: former Tax Law § 1440.7 categorically EXCLUDES a transfer "pursuant to devise, bequest or inheritance" from the definition of a taxable transfer of real property. That exclusion applied here even though transferring shares to a sponsor's FAMILY MEMBERS as a lifetime gift is normally a taxable event under a separate regulation (former 20 NYCRR § 590.35(c)) -- because the bequest exclusion doesn't carve out family recipients, it swept in the whole distribution regardless of who received it. That meant the estate's distribution of all eight remaining apartments to the beneficiaries wasn't itself subject to gains tax, letting the decedent's and estate's own filing be closed out as a complete "sell-out" of every unit. Second, looking forward to the beneficiaries' own eventual sales: the family members' (parents' and brother's) later individual sales of their tenant-in-common units would be aggregated WITH EACH OTHER for the $1 million threshold, but NOT with the decedent's own prior sales, and NOT with the three unrelated beneficiaries' sales -- unless the family units had been acquired as part of a scheme to avoid the gains tax (former 20 NYCRR § 590.40(d)), which wasn't the situation here. The three unrelated beneficiaries' later sales would each be tested completely independently. And regardless of aggregation outcome, any beneficiary -- family or unrelated -- could still separately claim the personal residence exemption if they genuinely occupied their apartment as their home.

What this means for you

Estates and heirs of cooperative or condominium sponsors with unsold inventory

Under this now-repealed tax, a sponsor's death didn't turn unsold units into a taxable event when distributed by will -- the bequest exclusion applied regardless of whether the heirs were family or strangers, letting the estate close out the decedent's own gains-tax obligations cleanly.

Estate attorneys structuring or administering the distribution of a decedent's unsold real estate inventory

This opinion is a useful confirmation that the bequest/inheritance exclusion overrides the OTHERWISE-applicable family-member taxable-transfer rule -- worth remembering when the same underlying transaction could be analyzed two different ways depending on which regulation you reach for first.

Accountants tracking aggregation exposure for multiple heirs who later sell inherited real estate

The default rule here (family co-heirs aggregated with each other, unrelated heirs and the decedent's own sales kept separate) is a clean template, but the exception for tax-avoidance schemes (former 20 NYCRR § 590.40(d)) is worth flagging whenever a family group's inheritance looks engineered to spread consideration below the $1 million threshold.

Common questions

Q: Does this bequest exclusion rule still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Current New York real estate taxes have their own separate rules for inherited property.

Q: Why would a lifetime GIFT to family members be taxable, but a BEQUEST to those same family members not be?
A: Because the statute's bequest/inheritance exclusion is written categorically, without regard to who receives the property -- it simply doesn't apply the "transfer of real property" definition to transfers by devise, bequest, or inheritance at all, overriding what would otherwise be a taxable family-member share transfer under the regulations.

Q: Why were the family members' later sales aggregated with each other, but not with the unrelated beneficiaries'?
A: Because the family members held their five units together as tenants in common and were related to each other, while the three unrelated beneficiaries and the family group had no relationship, coordination, or shared ownership with one another after the estate settled.

Q: Can another sponsor's estate rely on this exact ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and the "no aggregation" conclusions here depended on confirming the family units weren't acquired as part of a tax-avoidance scheme.

Citations and references

Statutes and regulations:

• former Tax Law § 1440.7 (broad "transfer of real property" definition, but expressly EXCLUDING a transfer pursuant to devise, bequest, or inheritance)
• former Tax Law § 1443.2 (exemption for premises occupied by the transferor as his residence)
• former 20 NYCRR § 590.35(a) (transfers of cooperative shares to tenant stockholders require payment of gains tax)
• former 20 NYCRR § 590.35(c) (transfers of shares to family members of the realty transferor or its owners require payment of gains tax, as a lifetime transaction)
• former 20 NYCRR § 590.40(d) (transfers by family members of the realty transferor, or family members of its owners, are NOT aggregated with each other or with the realty transferor's own transfers for the $1 million exemption, as long as they weren't made to avoid the gains tax)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1990.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a90_6r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-90(6) R
Real Property
Transfer Gains Tax
July 9, 1990

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M900315A

On March 15, 1990, a Petition for Advisory Opinion was received on behalf of Estate of Alan
M. DaCunzo, c/o Lowenthal, Landau, Fischer and Ziegler, P.C., 250 Park Avenue, New York, New
York 10177.
The issues raised by the Petitioner, Estate of Alan M. DaCunzo, are whether the
consideration received from the sale of cooperative apartments by a beneficiary of the Estate of Alan
M. DaCunzo will be aggregated with the consideration received from sales of other cooperative
apartments by other beneficiaries for purposes of applying the one million dollar exemption provided
for by the Tax on Gains Derived From Certain Real Property Transfer (the "gains tax") and whether
the consideration received by the beneficiaries from the sale of cooperative apartments is to be
aggregated with consideration received by Alan M. DaCunzo as sponsor of a cooperative conversion
prior to his death.
The decedent, Alan M. DaCunzo, was the sponsor of an offering plan dated November 29,
1984 to convert 359-361 West 30th Street, New York, New York (the "Premises"), which contains
twelve apartment units, to cooperative ownership. The Premises were conveyed to the cooperative
housing corporation on December 31, 1985. At the time of conversion, the decedent sold three of
the apartments, and prior to his death he sold one additional apartment.
In his will, the decedent bequeathed the eight remaining apartments: one each to three
unrelated individuals and the other five to his parents and brother, as tenants in common. None of
the beneficiaries had any interest in the cooperative apartments or in the real estate prior to the
decedent's death. Furthermore, the beneficiaries of the Estate are unrelated to one another (except
for the decedent's family who will own their units as tenants in common) and will not maintain any
business relationship with one another subsequent to the distribution of assets.
At this time Petitioner would like to close out the cooperative filing made for gains tax
purposes, in order that a final determination of any tax due with respect to the decedent's apartments
may be made prior to the distribution of the assets of the estate since if the case remains open, a
portion of the total gains tax ultimately owed will be attributable to the apartments sold by the
decedent prior to his death. This creates serious administrative difficulties for the Petitioner, since
it will be impossible for the Petitioner to make a final accounting until there is a conclusive
determination of the Petitioner's ultimate gains tax liability.
The gains tax is a ten percent tax on the gain derived from the transfer of real property, which
includes the transfer or acquisition 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
TP-9 (9/88)

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TSB-A-90(6) R
Real Property
Transfer Gains Tax
July 9, 1990

transfer is one located in New York State and where the consideration for the transfer is one million
dollars or more.
Section 1440.7 of the Tax Law, in pertinent part, defines the term "transfer of real property"
to mean:
the transfer or transfers of any interest in real property by any method,
including but not limited to sale .... 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. For purposes of
this article, transfers pursuant to a cooperative plan shall include all
transfers of stock in a cooperative corporation which owns real
property. Notwithstanding the foregoing, transfer of real property
shall not include a transfer pursuant to devise, bequest or
inheritance... (emphasis added)
Furthermore, Section 590.35 of the Gains Tax Regulations provides in part, as follows:
Question: Which transfers of cooperative shares by the person who
transfers an interest in real property to the cooperative housing
corporation (the realty transferor), or by the owners of the realty
transferor, or by the cooperative corporation itself, require payment
of tax?
(a) Transfers to tenant stockholders?
Answer: Yes, gains tax must be paid when the shares are transferred
to persons who buy shares and are granted proprietary leases with
respect to units.
(c) Transfers to family members of the realty transferor or family
members of owners of the realty transferors?
Answer: Yes, gains tax must be paid when shares are transferred to
family members of the realty transferor or family members of the
owners of the realty transferor.

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TSB-A-90(6) R
Real Property
Transfer Gains Tax
July 9, 1990

In addition, Section 590.40 of the Gains Tax Regulations provides, in part, as follows:
Question: In the case of transfers pursuant to a cooperative plan, how
does the aggregation clause of section 1440(7) of the Tax Law and,
accordingly, the $1 million exemption apply to the following
transfers?
(d) The transfer of shares by family members of the realty transferor
or family members of the owners of the realty transferor?
Answer: As long as the transfers to the family members of the realty
transferor or family members of the owners of the realty transferor
were not made for the purpose of avoiding the gains tax, the transfers
by such family members will not be aggregated with each other nor
with the transfers by the realty transferor for purposes of applying the
one million dollar exemption.
Moreover, section 1443.2 of the Tax Law provides exemption from the gains tax to the extent
the real property being transferred consists of premises occupied by the transferor as his residence.
The bequest of the eight remaining apartments by Alan M. DaCunzo is not a transfer of real
property for purposes of the gains tax and, therefore, the transfer by the Petitioner to the legatees is
not subject to said tax since pursuant to Section 1440.7 of the Tax Law transfer of real property shall
not include a transfer pursuant to devise, bequest or inheritance. This is so, regardless of the fact that
the transfers are made to family members as deemed taxable in Section 590.35(c) of the Gains Tax
Regulations. Thus, the Petitioner and the decedent will be deemed to have made a complete sell-out
of all their units and their gains tax liability can be determined.
As for the subsequent transfer of the cooperative apartments by the family members, since
such apartments were not acquired in a scheme to avoid the gains tax, the consideration received
from the transfer of such apartments by the Petitioner is not required to be aggregated with the
consideration received from transfers made by the decedent. In addition, the consideration received
from their transfers are not required to be aggregated with the consideration received by the other
three individual beneficiaries. However, the transfer of the five apartments by the family members
will be subject to gains tax if the aggregate consideration anticipated to be received from the
subsequent transfer of such apartments is one million dollars or more. Therefore, the family members
must make a gains tax filing in connection with the subsequent transfer of these five apartments.
Moreover, the subsequent transfers of the apartments by the three unrelated beneficiaries will
be treated separately for purposes of the one million dollar exemption. Even if the sales price

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TSB-A-90(6) R
Real Property
Transfer Gains Tax
July 9, 1990

exceeds one million dollars, such transfers would not be subject to gains tax if the individual
transferor can establish that he occupied and used such apartment exclusively as his residence.

DATED: July 9, 1990

NOTE:

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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