As trustee of an estate, I'm selling a farmhouse where two disabled beneficiaries lived, plus two adjacent vacant farm parcels, to the same buyer. Is the house sale exempt from New York's Real Property Transfer Gains Tax as a residence, and do I have to add its sale price to the two land parcels' prices to test the $1 million threshold?

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 It was repealed for any transfer occurring on or after June 15, 1996.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 1993 opinion is preserved here for historical and research value, not as current law.

Mary and Seely Ward bought a roughly 100-acre working farm straddling the Towns of Chester and Goshen in Orange County in 1945. Their two sons, Thomas and John, both suffered disabling injuries (John from a birth defect, Thomas from a childhood car accident) and lived with their parents, and then with Mary Ward alone, in the farmhouse until her death. Mary Ward's will (naming Orange County Trust Company as Executor and Co-Trustee) expressed her wish -- though not a binding direction -- that her sons be allowed to keep living in the house as long as possible. Unable to afford maintaining the whole working farm, the trust subdivided it and contracted to sell the two vacant farm parcels to a single buyer, Andrew Palmer, for $600,000 and $300,000, intending to keep the house for the sons. In January 1993, the sons (by then in their late 40s) decided they no longer wanted to live there and moved out, so the trust also agreed to sell the house to the same buyer -- who wasn't planning to live there himself -- for $120,000. None of the three parcels had ever closed as of this opinion.

Was the house exempt as a residence? Yes. The gains tax's personal residence exemption (former § 1443.2) extends, by regulation, to an estate's or trust's sale of a decedent's or beneficiary's residence under the same rules that would apply to an individual (former 20 NYCRR § 590.24(e)). Since the house had been used continuously and solely as the sons' residence -- never depreciated, treated as the "home acre" -- the Department confirmed the house sale itself qualified for the exemption.

Did the three sales have to be aggregated anyway? Yes. New York's aggregation rule (former § 1440.7, former 20 NYCRR § 590.42) generally combines the consideration from contiguous or adjacent parcels sold to the SAME buyer -- unless the taxpayer proves the only connection is physical proximity itself, with no common or related use. Citing the Tax Appeals Tribunal's Ahmet and Ioana M. Ertegun decision (which aggregated a personal residence parcel with an adjoining guest-house parcel because both were used for a shared purpose), the Department found the Ward parcels shared exactly that kind of correlation: all three had been used for, and remained zoned for, agricultural purposes. That real connection -- beyond mere adjacency -- required combining all three sale prices ($1,020,000 total) to test the $1 million threshold, even though the house itself was independently exempt.

How to actually calculate the tax. Citing Vincent Melomo v. Tax Appeals Tribunal, the Department confirmed the correct method is to compute the TOTAL combined consideration first (to see if the $1 million threshold is crossed at all), and only THEN carve out and apportion the exempt residential value -- not the other way around.

What this means for you

Trustees and estate administrators selling a beneficiary's home alongside other estate land

Under this now-repealed tax, a trust or estate's sale of a beneficiary's residence got the same exemption an individual seller would -- but that exemption didn't insulate the sale from being aggregated with other, non-exempt parcels sold to the same buyer if they shared a real-world connection (like a shared zoning classification and historical agricultural use). Selling farmland and a farmhouse to the same buyer, even in "separate" contracts, could still be treated as one combined transfer for threshold purposes.

Farm owners and their heirs splitting up agricultural land and a residence

The presence of a shared use or zoning classification (agricultural, in this case) was enough of a "correlation" to defeat an argument that adjoining parcels sold to one buyer were unrelated. If you want separate parcels to avoid aggregation, this ruling suggests you'd need more than physical proximity working in your favor -- you'd need to show the properties genuinely had nothing in common besides being next to each other.

Accountants computing gains-tax liability on a mixed exempt/taxable multi-parcel sale

This opinion is a clean statement of the correct calculation SEQUENCE: total up all aggregated consideration first to determine if the $1 million threshold applies at all, and only then apportion out the exempt residential value -- reversing that order (apportioning first, then testing the smaller remainder against $1 million) would have been incorrect under Melomo.

Common questions

Q: Does the trust/estate residence exemption still matter today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Estates and trusts selling real property today are subject to different tax rules (including federal basis step-up and capital gains rules).

Q: Why did the agricultural zoning and historical farm use matter so much?
A: Because the aggregation rule only backs off when a taxpayer proves parcels have NO connection beyond physical adjacency. Since the house and the two farm parcels had all genuinely been used together as part of one working farm and shared the same agricultural zoning, that shared purpose was exactly the kind of correlation the rule targets.

Q: If the house alone had sold for under $1 million to a different buyer, would it have owed any tax?
A: Based on the residence exemption alone (setting aside the aggregation question), no -- a qualifying personal residence sale was fully exempt regardless of price. The aggregation issue only arose because it was sold to the SAME buyer as the adjacent, correlated farm parcels.

Q: Can another trustee selling a similar mixed residence-and-farmland estate rely on this ruling?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioner and facts presented, and aggregation determinations are highly fact-specific to the actual correlation (or lack of one) between the parcels.

Citations and references

Statutes and regulations:

• former Tax Law § 1441 (imposition of the gains tax at 10% of gain, for transfers with consideration of $1 million or more)
• former Tax Law § 1443.1 (the $1 million exemption)
• former Tax Law § 1443.2 (personal residence exemption, limited to the portion occupied and used residentially)
• former Tax Law § 1440.7 (definition of "transfer of real property"; aggregation of contiguous or adjacent parcel transfers to the same transferee)
• former 20 NYCRR § 590.24(e) (the residence exemption extends to an estate's sale of a decedent's residence, under the same rules as an individual)
• former 20 NYCRR § 590.24(f) (the exemption includes land abutting the residence not used for business; land sold separately from the dwelling doesn't qualify)
• former 20 NYCRR § 590.25 (a residence used partly for business gets a partial exemption, apportioned by the same method used on the transferor's income tax returns)
• former 20 NYCRR § 590.42 (contiguous or adjacent parcels sold to one transferee are generally aggregated, unless the taxpayer shows no correlation beyond mere proximity)

Case law cited:

• Vincent Melomo v. Tax Appeals Tribunal, 600 N.Y.S.2d 391 (1993) (correct method is to compute total aggregated consideration first, then apportion the exempt residential value, when determining the taxable gain)
• Ahmet and Ioana M. Ertegun, Dec. Tax App. Trib., July 16, 1992 (a personal residence parcel and an adjoining guest-house/rental parcel had to be aggregated, since a shared use beyond mere contiguity existed)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1993.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a93_17r.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-93(17)-R
Real Property
Transfer Gains
Tax

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M930729A

On July 29, 1993, a Petition for Advisory Opinion was received from Orange
County Trust Company, 75 North Street, Middletown, New York 10940.
The issues raised by Petitioner, Orange County Trust Company, are:

1. Whether the transfer of the beneficiaries� dwelling house
   qualifies for the residential exemption for purposes of the Real
   Property Transfer Gains Tax (hereinafter the “gains tax”) as
   provided by Section 1443.2 of the Tax Law.�
2. Whether the consideration received from the sale of the
   beneficiaries� dwelling house must be aggregated with the
   consideration received from two contiguous vacant parcels for the
   purposes of the gains tax.
   Mary and Seely Ward purchased a farm consisting of approximately 100 acres,
   partly within the Town of Chester and partly within the Town of Goshen, Orange
   County, New York on August 1, 1945. Upon the death of Seely Ward, Mary Ward
   became the sole owner of the property until the time of her death.
   Mary and Seely Ward had two sons, Thomas and John. Both of them resided
   with Seely and Mary Ward and then with Mary Ward until the time of her death.
   They occupied the dwelling house located on the farm.
   John Ward is mentally retarded having been born with a birth defect and is
   incompetent and not capable of taking care of himself. During her lifetime, Mary
   Ward took care of him. Thomas Ward was involved in a serious automobile accident
   when he was about 14 years of age and suffered head injuries which left him
   retarded as veil, although not to the same degree as John. He also lived with
   his mother and father in the farm house on the farm until the death of Mary
   Ward.
   Pursuant to Mary WardҮ�s will dated October 26, 1981, Petitioner, a domestic
   banking corporation located in Middletown, New York, was named as Executor and
   as Co-Trustee with Charles M. Smith. Both Trustees qualified in the Surrogate�s
   Court of Orange County and are still acting as Trustees.
   Mary WardҮ�s will contained language expressing her desire, but not a
   direction, that the two sons be permitted to remain in the dwelling house so
   long as possible after her death. The two sons are now in their late 40Үs.
   Petitioner had insufficient funds to continue to maintain the farm which
   was, and is, a working farm which has been, and is, rented. An opportunity came
   to sell the land and retain the house as the residence and home of the two sons,
   which was the wish and desire of Mary Ward. In order to do this, it was
   necessary to subdivide the farm, which was done by Petitioner and approved by

TP-9 (9/88)

- 2 ­
TSB-A-93(17)-R
Real Property
Transfer Gains
Tax
the Planning Board of the Town of Goshen, and a subdivision map was filed in the
Orange County Clerk�s Office on June 19, 1990.
After the subdivision was approved, two contracts were entered into with
Andrew L. Palmer, one for $600,000 and one for $300,000. The two parcels
represented the vacant land on the farm and excluded the residence used by the
Wards and, thereafter, continued to be used by the two sons. It was the
intention of the Trustee to sell the vacant land on the farm and to maintain the
residence and home of the two sons.
In January, 1993, the two sons determined that they no longer wished to
reside on the property, and consequently, moved to Unionville, New York, where
they presently reside. Thus, since they no longer wished to reside in the
residence, the Trustees approached the buyer of the land and he agreed to
purchase the residence as well. The purchase price agreed to was $120,000. The
purchaser� is not, however, purchasing the residence for use as his personal
residence. The sale of the three parcels has not yet been consummated.�
From its purchase in 1945 until the present time, there has been no
depreciation of the residential property occupied by the Wards either by them or
by Petitioner or Trustees. It has been treated as the home acre and solely as a
residence. All three parcels are, however, zoned agricultural.
Pursuant to Sections 1441 and 1443.1 of the Tax Law and Section 590.1 of
the Gains Tax Regulations the gains tax is a ten percent tax on the gain derived
from the transfer of real property, which includes the acquisition or transfer
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
transfer is one million dollars or more.
Section 1440.7 of the Tax Law provides, in pertinent part, as follows:
7.
“Transfer of real property” means the transfer or transfers
of any interest in real property by any method, including but not
limited
to
sale,
exchange,
assignment,
surrender,
mortgage
foreclosure,
transfer
in
lieu
of
foreclosure,
option,
trust
indenture, taking by eminent domain, conveyance upon liquidation or
by a receiver, or transfer or acquisition of a controlling interest
in any entity with an interest in real property.
…
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.

- 3 ­
TSB-A-93(17)-R
Real Property
Transfer Gains
Tax

Section 1443 of the Tax Law provides, in part, as follows;
Sec. 1443. Exemptions.--A total or partial exemption shall be
allowed in the following cases:
*

*

*

2.
If the real property consists of premises occupied by the
transferor as his residence (but only with respect to that portion of
the premises actually occupied and used for such purposes).
Section 590.24 of the Gains Tax Regulations provides, in part, as follows:
*

*

*

(e)
Question: Is the sale of premises by an estate exempt
from the gains tax when the premises were occupied and used as a
residence by the decedent?
Answer: Yes. The same rules for determining the applicability
of the personal residential exemption for an individual apply to the
sale of the premises by a decedent�s estate.
(f) Question: When a residence is sold, does all of the land
abutting the residence qualify for the exemption?
Yes. A residence includes all the land on which the
Answer:
dwelling is located and the land abutting the dwelling as long as
the abutting land was never used for business purposes (e.g., farm,
rental, etc.).
(See section 590.25 of this Part for a discussion
on property used for business.) However, the land alone is not a
residence and thus where part of the land is sold separately, the
portion or portions sold without the dwelling will not qualify for
the residential exemption found in section 1443(2) of the Tax Law.
(emphasis added)
590.25

Residence used for business purpose.

How does the million-dollar exemption interact
(a)Question:
with the residential exemption when the transferor used a portion of
his residence for a business use?
Answer: The million-dollar exemption is applied to the total
consideration received for the transfer of the real property and
therefore, if the total consideration is $1 million or more the
transaction will be taxable to the extent of gain realized on the
business portion of the real property. The consideration received and
the original purchase price must then be allocated between the
portion of the property used for business and the residential
portion; generally this allocation will be based on the method of
allocation used on the transferor�s Federal and State income tax
return.

- 4 ­
TSB-A-93(17)-R
Real Property
Transfer Gains
Tax
X uses 20 percent of his home exclusively for business purposes.
In 1985, X sells his home for 1.6 million dollars. Since the
total consideration is more than $1 million the transfer will be
subject to the gains tax. If XҮs original purchase price was
$600,000, his taxable gain would be computed as follows:
Business
Total
(Total x 20%)
Consideration
$1,600,000
$320,000
Original purchase price
120,000
600,000
Gain
$200,000
$1,000,000
Rate
.10
Tax Due
$ 20,000
Example:

Section 590.42 of the Gains Tax Regulations provides as follows:
590.42

Contiguous or adjacent parcels.

Question: Is the consideration received by a transferor for
the transfer of contiguous or adjacent parcels of property to one
transferee added together for purposes of applying the $1 million
exemption?
Answer: Generally, yes. A transfer of real property is
defined in section 1440(7) of the Tax Law to mean “the transfer or
transfers of any interest in real property.” Thus, the separate deed
transfers of continuous or
adjacent properties
to one transferee
are, for purposes of the gains tax, a single transfer of real
property.
It is the consideration for the interests in a single
transfer, regardless of the number of deeds used to transfer the
property, that is used to determine the application of the $l million
exemption.
However, if the transferor establishes that the only correlation
between the properties is the continuity or adjacency itself, and
that the properties were not used for a common or related purpose,
the consideration will not be aggregated.
When the transfer is to more than one transferor, whether the amount
paid for each deed transfer is added together depends on whether the
transferor is subject to the aggregation clause for partial or
successive transfers. (See section 590.43 of this Part). (emphasis
added)

- 5 ­
TSB-A-93(17)-R
Real Property
Transfer Gains
Tax
In Vincent Melomo et al. v. Tax Appeals Tribunal, 600 NYS2d 391, July 15,
1993, the Court held that the Division of Taxation�s methodology of first
computing the total consideration to determine if the $1,000,000 gains tax
threshold was met and then subtracting the apportioned value of the exempt
residential interest was the correct method to follow when determining the gain
subject to tax.
In Ahmet and Ioana M. Ertegun, Dec Tax App Trib, July 16, 1992 the Tribunal
held that the consideration received from the sale of subdivided parcels should
be aggregated even though one parcel was improved with the personal residence of
the transferor and the other parcel was improved with a guest house.
In its decision the Tribunal held that since the transfer of the contiguous
parcels were made to one transferee and that there was a correlation between the
properties besides the contiguity or adjacency of the parcels that the
provisions of Section 590.42 of the Gains Tax Regulations applied. In its
discussion, the Tribunal held that only in the rare instance that the nature of
the properties at issue had no kinship whatsoever, except their physical
proximity, would the petitioners burden of showing that there was no correlation
between the properties be met. Moreover, it was decided that since one parcel
was the residence of the transferor and the other contiguous parcel was used for
business purposes to derive rental income that the provisions of Sections
590.24(f) and 590.25 of the Gains Tax Regulations should also be applied for
purposes of applying the one million dollar exemption.
With respect to issue “1”, pursuant to Section 590.24(e) of the Gains Tax
Regulations the transfer by an estate of the personal residence of a decedent is
not subject to gains tax. In the instant case, Petitioner is transferring the
residence of the decedents, Seely and Mary Ward, which is in trust for their
sons John and Thomas Ward who occupied the premises as their personal residence.
Therefore, pursuant to Section 1443.2 of the Tax Law and Section 590.24(e) of
the Gains Tax Regulations the transfer of the residence by Petitioner is not
subject to gains tax.
Concerning issue “2”, pursuant to Section 1440.7 of the Tax Law and Section
590.42 of the Gains Tax Regulations the transfer of contiguous or adjacent
parcels to one transferee is to be treated as a single transfer for purposes of
the gains tax. Moreover, pursuant to Ahmet
and Ioana
M. Ertegun, supra, the
transfer of contiguous parcels, which included a parcel improved with the
personal residence of the transferor, to one transferee was treated as a single
transfer and the consideration received for such parcels was required to be
aggregated for purposes of the one million dollar threshold. In the instant
case, Petitioner is transferring the personal residence of the beneficiaries and
two contiguous parcels to one transferee. Further, the residence and the two
vacant parcels have a correlation in that they were used for agricultural
purposes and are zoned for agricultural use. Accordingly, pursuant to Section
1440.7 of the Tax Law, Section 590.42 of the Gains Tax Regulations, and Ahmet
and Ioana M.
Ertegun, supra, the consideration from the sale of the three
parcels is to be aggregated.

- 6 ­
TSB-A-93(17)-R
Real Property
Transfer Gains
Tax
It is noted that since the real property was used partly as a residence of
the transferor and partly for business use, the transfer of the real property
will qualify for a partial exemption from the gains tax in accordance with
Sections 590.24(f) and 590.25 of the Gains Tax Regulations and Ahmet and Ioana
M. Ertegun, supra. However, in accordance with Vincent Melomo et a1. v. Tax
Appeals Tribunal, supra, Petitioner must first compute the total consideration
for the transfer of all the parcels before apportioning the value of the exempt
residential interest in determining the gain subject to tax.

DATED: November 2, 1993

s/PAUL B. COBURN
Deputy Director
Taxpayer Services Division

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