My business partner and I each own a 50% share (as tenants-in-common) in five properties held through a partnership, and we each want to put our share into a Grantor Retained Annuity Trust for estate planning, then divide the actual properties between our two families instead of continuing to co-own everything. Does that division trigger New York's Real Property Transfer Gains Tax?

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 It was repealed for any transfer occurring on or after June 15, 1996.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 1994 opinion is preserved here for historical and research value, not as current law.

Mikal and Anny Moskeland and Harry and Olaug Tobiassen jointly held five Huntington, New York properties -- 41 Covington Street, 8 Chicory Lane, 444 Jericho Turnpike, 281 Walt Whitman Road, and 5074 Jericho Turnpike -- with title recorded as tenants-in-common between the two families, even though the income and expenses had always been reported on the partnership returns of "Viking Realty Co." (50% Moskeland, 50% Tobiassen). For estate planning purposes, each of the four individuals set up a 10-year Grantor Retained Annuity Trust (a trust paying the grantor a fixed annuity, with the remainder passing to the grantor's children). Based on appraisals, the plan was for the Tobiassen family trusts to receive exclusive title to three of the properties (41 Covington Street, 281 Walt Whitman Road, and 5074 Jericho Turnpike) and the Moskeland family trusts to receive exclusive title to the other two (8 Chicory Lane and 444 Jericho Turnpike) -- with each family's package worth roughly the same as the OTHER family's, matching what each family's prior 50% aggregate interest had been worth across all five properties. The families planned to keep running the properties jointly, splitting income and expenses equally, until one of them died.

New York's now-repealed gains tax exempted a "mere change of identity or form of ownership or organization" with no change in beneficial interest (former § 1443.5). The Department's own regulations (former 20 NYCRR § 590.50) confirmed that a tenants-in-common group contributing their jointly-held property to a partnership IN THE SAME PRO RATA SHARES -- or the reverse -- is exactly this kind of exempt, form-only change. Applying that principle here: to the EXTENT each family's post-split ownership matched the SAME pro rata share they'd held before the split, the transfer was a mere change of form and exempt. But the families weren't just re-titling identical percentages -- they were trading a 50% interest spread across five properties for 100% (exclusive) ownership of a smaller group of properties. To the extent that swap gave either family MORE than its historical 50% interest in ANY SPECIFIC property (which is inherent in going from "half of everything" to "all of some of it"), that portion represented a genuine change in beneficial interest, and the individual whose interest increased in a given property would be liable for gains tax on that gain -- but only for any property where the value transferred exceeded the $1 million threshold.

What this means for you

Business partners or family co-owners restructuring jointly held real estate for estate planning

Under this now-repealed tax, dividing up co-owned real estate between family groups -- even for a legitimate estate-planning purpose like funding trusts -- wasn't automatically tax-free just because the OVERALL values were designed to balance out. The Department looked at each individual property and asked whether that specific owner's percentage interest in THAT property actually increased; going from a fractional interest in many properties to full ownership of fewer properties is, by definition, a change in beneficial interest as to each property where your share went up.

Estate planning attorneys structuring GRATs or similar trusts funded with co-owned real estate

This ruling is a clear example of the "mere change" exemption applying PARTIALLY, property by property and owner by owner, rather than as a blanket pass for a whole restructuring just because it's estate-planning motivated and the aggregate values are balanced. Expect a gains-tax analysis (under this now-repealed regime) to require tracking each co-owner's before-and-after percentage in every individual parcel.

Accountants valuing a partition or property-division transaction

The key metric here wasn't the dollar value swapped in the aggregate deal -- it was each transferor's CHANGE in percentage ownership of each specific parcel, valued against the $1 million per-transfer threshold.

Common questions

Q: Does this analysis still matter for family property divisions today?
A: Not under this specific tax -- it was repealed for transfers on or after June 15, 1996. Other tax consequences of partitioning co-owned property (including federal gift and capital gains rules) follow separate, current rules.

Q: Why wasn't the whole transaction simply exempt, since the two families ended up with roughly equal total value?
A: Because the gains tax exemption looks at whether each transferor's BENEFICIAL INTEREST IN EACH SPECIFIC PROPERTY changed, not whether the overall deal was value-balanced. Swapping breadth (a fractional share in many properties) for depth (full ownership of fewer properties) changes each family's interest in individual parcels even if the total dollar value stays the same.

Q: Who would be liable for any resulting gains tax?
A: The Department stated that "the individual Petitioner who transfers his or her interest in said property will be subject to the gains tax on the gain on his or her interest transferred to the other Petitioners" -- so each person giving up part of their existing interest in a specific property (in favor of the other family gaining more of it) is the one potentially liable, if the value of what they gave up on that property exceeded $1 million.

Q: Can another family or business partnership rely on this ruling for a similar restructuring?
A: No, apart from the repeal -- an Advisory Opinion binds the Department only as to the petitioners and facts presented, and this kind of percentage-by-percentage, property-by-property analysis is highly fact-specific.

Citations and references

Statutes and regulations:

• former Tax Law § 1441 (imposition of the gains tax at 10% of gain from real property transfers)
• former Tax Law § 1443.1 (the $1 million exemption)
• former Tax Law § 1443.5 (exemption for a transfer that is a mere change of identity or form of ownership or organization, with no change in beneficial interest)
• former Tax Law § 1440.7 (definition of "transfer of real property," including a transfer by partition)
• former 20 NYCRR § 590.50 (a transfer by tenants-in-common of their interest to a partnership, or the reverse, in the same pro rata shares, is a mere change of identity or form of ownership, with a carry-over original purchase price)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/real_prop_tran_ao_1994.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/real_property/a94_10r.pdf

Original ruling text

New York State Department of Taxation and Finance
TSB-A-94 (10) R
Real Property
Transfer Gains Tax
July 14, 1994

Taxpayer Services Division
Technical Services Bureau

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. M940510A
M940510B
M940510C
M940510D

On May 10, 1994, Petitions for Advisory Opinion were received from Mikal Moskeland and
Anny Moskeland, 336 West Hills Road, Huntington, New York and Harry Tobiassen and Olaug
Tobiassen, 27 Heckscher Drive, Huntington, New York.
The issue raised by Petitioners, Mikal Moskeland, Anny Moskeland, Harry Tobiassen, and
Olaug Tobiassen, is whether the transfer of real property from Petitioners to their respective trusts
will be subject to the Real Property Transfer Gains Tax (the "gains tax").
Petitioners own the following properties which are subject to the proposed conveyances:
41 Covington Street
8 Chicory Lane
444 Jericho Turnpike
281 Walt Whitman Road
5074 Jericho Turnpike
All of the properties are deeded as follows:
"MIKAL MOSKELAND and ANNY MOSKELAND, both residing at 336 West
Hills Road, Huntington, New York and HARRY TOBIASSEN and OLAUG
TOBIASSEN, both residing at 27 Heckscher Drive, Huntington, New York, each as
tenants in common as to the other."
Notwithstanding the record ownership of the properties, the income and expenses associated
with all of the properties have historically been reported by Petitioners on partnership returns of
"Viking Realty Co." The proportionate shares reported on the partnership returns have been as
follows:
Mikal Moskeland
Harry Tobiassen

50%
50%

Petitioners desire to alter the record ownership of the properties to facilitate their respective
estate plans.

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TSB-A-94 (10) R
Real Property
Transfer Gains Tax
July 14, 1994
The plan is to divide the properties between the two Petitioner families so that each family
has exclusive title to property with an aggregate fair market value approximately equal to the fair
market value of property to be deeded to the other family.
Each Petitioner will form a trust having provisions which create a "Grantor Retained Annuity
Trust". The trusts will be known, respectively, as the Harry Tobiassen Family Trust, the Olaug
Tobiassen Family Trust, the Mikal Moskeland Family Trust and the Anny Moskeland Family Trust.
The terms of each trust will be identical. The pertinent dispositive provisions of each of the
trusts are as follows:
*

The trust term will be 10 years from the creation of the trust or the earlier
date of death of the Grantor.

*

Pending the termination of the trust, the trust will pay to the Grantor an
annuity of $65,000 per annum, in quarterly installments.

*

Upon expiration of the trust, if the Grantor is then living, the property will be
distributed to the Grantor's issue, in equal shares, per stripes. However, if the
Grantor is not then living, the capitalized value of the annuity must be paid
to the Grantor's estate and the remainder of the trust property, if any, will be
distributed to the Grantor's issue, in equal shares, per stripes.

If the Grantor dies before the conclusion of the trust term, the entire property within the trust
will be required to be distributed to the Grantor's estate since the value of the property at the date of
the Grantor's death cannot now be known with certainty, and the capitalized value of the annuity
could equal or exceed the value at the date of death.
Based on appraisals received by Petitioners, it is proposed that the properties be deeded as
follows:
The Harry Tobiassen Family Trust and the Olaug Tobiassen Family Trust, as
tenants-in-common, will receive:
41 Covington Street
281 Walt Whitman Road
5074 Jericho Turnpike
The Mikal Moskeland Family Trust and the Anny Moskeland Family Trust,
as tenants-in-common, will receive:
8 Chicory Lane
444 Jericho Turnpike

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TSB-A-94 (10) R
Real Property
Transfer Gains Tax
July 14, 1994
Following the deeding of the properties in the foregoing manner, based on the fair market
values of the properties each of the trusts will own property equal in value to the share of partnership
property previously beneficially owned by the grantor of such trust.
Notwithstanding the proposed change of record ownership, pending the death of one of
Petitioners the properties will continue to be operated in a manner identical to the present mode of
operation, with all income and expenses to be shared equally. The income and expense sharing
agreement will be evidenced by a written document.
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 defines the term "transfer of real property", in part, to mean
the transfer or transfers of any interest in real property by any method. This would include a transfer
by partition.
Section 1443 of the Tax Law provides, in pertinent part, as follows:
Sec. 1443. Exemptions.-- A total or partial exemption shall be allowed in the
following cases:
*

*

*

5. If a transfer of real property, however effected, consists of a mere change
   of identity or form of ownership or organization, where there is no change in
   beneficial interest.
   Section 590.50 of the Gains Tax Regulations provides, in pertinent part, as follows:
   (a) Question: Section 1443(5) of the Tax Law exempts a transfer from the
   gains tax to the extent it "consists of a mere change of identity or form of ownership
   or organization, where there is no change in beneficial interest." Does this exempt:
   *

*

*

(2) The transfer by tenants-in-common of their interest in real property to a
partnership, to be owned in the same pro rata share as by the tenants-in-common?

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TSB-A-94 (10) R
Real Property
Transfer Gains Tax
July 14, 1994
Answer: Yes. This is a mere change of identity or form of organization. The
partnership's original purchase price of the property is the same as the original
purchase price of the tenants-in-common before such transfer (carry-over original
purchase price).
(3) The transfer of real property by a corporation to its shareholders, who will
hold the real property as tenants-in-common in the same pro rata share as they own
the corporation?
Answer: Yes. This is a mere change of identity or form of ownership or
organization. The shareholders will have a carry-over original purchase price in the
real property.
*

*

*

(5) The transfer by tenants-in-common of real property to a corporation
which the tenants own in the same pro rata share?
Answer: Yes. This is a mere change of identity or form of ownership or
organization. (emphasis added)
Pursuant to Section 1443.5 of the Tax Law, a transfer of real property is totally or partially
exempt from gains tax to the extent it consists of a mere change of identity or form of ownership or
organization, where there is no change in beneficial interest. Pursuant to Section 590.50 of the Gains
Tax Regulations a transfer of real property is totally exempt from gains tax as a mere change of
identity if it is demonstrated that following the transfer the same parcel of real property is owned in
the same pro rata share by the transferee as such transferee held such property prior to the transfer.
In the instant case, while the income and expenses associated with all of the properties have
historically been reported on the partnership returns of "Viking Realty Co.", actual title to all of the
properties is held by Mikal Moskeland, Anny Moskeland, Harry Tobiassen and Olaug Tobiassen,
each as tenants-in-common as to the other. Presently, to facilitate their respective estate plans, it is
proposed to divide the properties between the two Petitioner families so that each family has
exclusive title to property with an aggregate fair market value approximately equal to the fair market
value of property to be deeded to the other family. Such properties will be held by Grantor Retained
Annuity Trusts created by Petitioners. Specifically, the Harry Tobiassen Family Trust and the Olaug
Tobiassen Family Trust, as tenants-in-common, will have exclusive title to 41 Covington Street, 281
Walt Whitman Road and 5074 Jericho Turnpike. The Mikal Moskeland Family Trust and the Anny
Moskeland Family Trust, as tenants-in-common, will have exclusive title to 8 Chicory Lane and 444
Jericho Turnpike. Accordingly, since Petitioners held an equal interest in all the properties as
tenants-in-common prior to the transfer and following the transfer will hold an interest in only some
of the properties pursuant to Section 1443.5 of the Tax Law and Section 590.50 of the Gains Tax
Regulations such transfer will effectuate a mere change of identity or form of ownership or
organization but only to the extent there is no change in the beneficial interest in the real property.

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TSB-A-94 (10) R
Real Property
Transfer Gains Tax
July 14, 1994
To the extent, however, Petitioners will no longer have the same pro rata share interest in the real
property following the transfer, pursuant to Section 590.50 of the Gains Tax Regulations such
transfer will be subject to the gains tax.
Therefore to the extent that the value of any of the properties exceeds $1,000,000 at the time
of the transfer, the individual Petitioner who transfers his or her interest in said property will be
subject to the gains tax on the gain on his or her interest transferred to the other Petitioners.

DATE: July 14, 1994

/s/
PAUL B. C0BURN
Deputy Director
Taxpayer Services Division

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